Effects on the real economy So what do we believe about the effects on the real economy? Increased interest rate margins and reduced lending volumes will probably result in certain macroeconomic effects in the form of reduced GDP. How great these effects will be is hard to say. The Basel Committee has appointed two groups with the task of more closely examining both the direct and the long-term macro effects of the new Basel regulations. 9 The results of their work do not indicate any drastic costs. They estimate that, during the actual implementation phase, Sweden’s GDP level will be slightly lower (approximately 0.3 per cent) that what it would be without Basel III. But, over the longer term, the new banking regulations will instead lead to higher GDP and prosperity – because we will reduce the likelihood of new crises. Making exact forecasts is always difficult. However, it is helpful to have an estimate of the levels we are talking about. And, in Sweden’s case, we can note that the costs for Basel III will not even come close to the costs of a crisis. For society as a whole, this will be a highly profitable investment in increased security. Basel III is a step forward, but more may be needed Consequently, the Riksbank welcomes the Basel III regulations. Considering the severe financial crisis we have been through in recent years and the shortcomings we have identified in the current regulations, it is perhaps not so difficult to understand why.
This can be traced back to the enactment of the Islamic Banking Act in 1983 and the Takaful Act in 1984 which facilitated the birth of the first full-fledged Islamic banking institution and takaful operator. Prior to this, Islamic finance was very niche. Its relevance was mostly limited to the provision of custodian services such as the pilgrimage fund as managed by Tabung Haji. There was no appeal to the wider market, then. Since the early 1980s, we have witnessed a significant transformation of Islamic finance in Malaysia. Over the years, this sector began to offer a wider range of solutions to cater for the evolving needs of the national economy and the local communities. Islamic finance now makes up a significant and growing share of the domestic market. The share of Islamic banking assets more than doubled from 12.9% in 2007 to 28% in 2016. Takaful penetration has now reached 14.6% of the population. Globally, Malaysia has established itself as a leading hub for Islamic finance. In the global sukuk market, we hold a share of more than 50% of the global outstanding sukuk. To cater for the growing size and sophistication, the legal foundation for Islamic finance has undergone several enhancements over the years. The Shariah Advisory Councils – or the SACs – of the Securities Commission and Bank Negara Malaysia were established roughly twenty years ago to promote greater Shariah certainty. They since have played an increasingly important role in the ascertainment of Shariah for matters of Islamic finance.