Islamic Finance News, 1st March 2016

The Tun Razak Exchange (TRX) is poised to catalyse Malaysia’s growing prominence in the world of regional and global finance, leveraging on its existing dominance in Islamic finance.

Malaysia, listed as one of the world’s top 10 fastest growing financial centres in 2015 by Business Insider, would continue to stamp its mark as the demands for Islamic finance and sukuk continue to flourish.

The country’s progress in Islamic banking has provided a noticeable spillover effect to the entire financial services sector.

In its latest Global Competitiveness Report, the World Economic Forum ranked Malaysia 4th in the financial market development pillar, out of 189 surveyed countries. The growth is attributed to the nation’s efforts to position itself as the leading centre of international Islamic finance.

In that report, the body also named Malaysia as the 20th most competitive country in the world, the best ranking for an emerging and developing Asian country.

Despite the global economic uncertainties, Malaysia is the “runaway leader” in Islamic finance development, and the top global Islamic economy, according to intelligence provider Thomson Reuters.

Globally, Malaysia is only second to Saudi Arabia in financial institutions, Islamic banking and takaful assets. But Malaysia beats the Middle East country in almost every other Islamic finance development measured by Thomson Reuters.

Data released last year by the ICD-Thomson Reuters Islamic Finance Development Indicator 2014 showed Malaysia had the biggest total Islamic finance assets (banking, takaful, other IFIs and sukuk) totaling US$423.29 billion or 25.53% of the global market – more than Saudi Arabia’s US$338.1 billion.

Islamic finance has grown two to three times faster than conventional banks in recent years, according to Ernst and Young.

“Until recently, the trend is shifting towards more shariah-compliant than conventional assets driven by greater convergence of Islamic Finance and other sectors of the Islamic Economy,” said June Liang, Director of Business & Financial Services, Frost & Sullivan Asia Pacific.

“This is highly favourable as Malaysia plays a leading role in both sectors in Asia Pacific – home to one-fourth of the global Muslim population,” Liang said.
Over the last few years, Malaysia has consistently ranked in the top 20 countries monitored by the World Bank group for ease of doing business, which it has achieved through the promotion of competitive international regulatory policies.

Since 1993, Malaysia’s Islamic finance industry has been anchored to one of the most progressive regulatory environments in the world.

Key and up-to-date regulations such as the Islamic Financial Services Act (IFSA) 2013 are designed to ensure customer protection and financial inclusion, while promoting the concept of risk sharing.

New guidelines for Sustainable and Responsible Investment Sukuk implemented from August 2014 are expected to assist fundraising in the health and green technology sectors.

Malaysia’s progressive regulatory environment has also helped Malaysia’s largest companies to expand and finance themselves through the world’s largest sukuk market, accounting for 68% of all global sukuk issuance in 2013.

A wealth of human capital

Within the region, Malaysia boasts some of the best multilingual talent in its workforce, according to Datuk Zainal Amanshah, the chief executive officer of InvestKL, the government initiative established to attract and facilitate multinational company investments into the capital.

This has helped Malaysian workers in complementing an ability to blend into different cultures, seen as a plus point for international businesses, Zainal said.

Malaysia published almost a third of all research papers on Islamic finance from 2011 to 2013, the most of any country, and has the most Shariah scholars in the world, according to Islamic Research and Training Institute’s 2015 Islamic Finance Report.

The same report also ranks Malaysia the highest globally among 38 providers for professional development programmes including certification, training, seminars and workshops.

Human resources are “Malaysia’s biggest advantage”, according to Shan Saeed, chief economist and investment strategist IQI Group Holdings, an international property and investment company advising clients in Kuala Lumpur, Singapore, Hong Kong, London, Melbourne and Dubai.

It is these advantages that ensure Malaysia remains at the top in the race to create the world’s top Islamic financial center, according to Wellian Wiranto, aneconomist at the Global Treasury department at the Oversea-Chinese Banking Corp Bank in Singapore.

The Tun Razak Exchange (TRX) financial hub will be “a big plus point” for Malaysia’s Islamic finance movement which is already enjoying a “first mover” advantage in Islamic finance through its development of infrastructure as well as the human capital skillset and legal workforce, the economist said.

As it enters the next phase of development, TRX has attracted interest from a wide range of investors who are seeking to tap into the nation’s strengths in financial services, human capital, and doing business.

The idea is to host financial services companies, leading multinational companies as well as complementary ancillary services providers in its ambition to be a financial hub for Malaysia. By locating these companies within one location in TRX, it creates a business clustering effect that enhances the ease of doing business for its tenants.

Construction has commenced on-site, including the tallest commercial building in TRX, which is being developed by Mulia Group, one of Indonesia’s leading property developer.

In March 2015, TRX has also signed with Lend Lease International, a global property and infrastructure group, to develop the Lifestyle Quarter, a retail mixed-used development occupying over 17 acres and comprising of a shopping mall, residential towers and a hotel.

It was recently reported leading global insurance group Prudential has signed a long term lease to be based in the financial district, while similar discussions with Islamic Development Bank was said to have taken place.

One of its confirmed tenants will include one of Malaysia’s local bank, Affin Bank Bhd, who has purchased a plot of land to build a 35-storey commercial office tower that will serve as its new group headquarters, With this, Affin group is expected to consolidate its other subsidiary operations which include its Islamic banking arm and insurance.

Malaysia’s flagship financial center

TRX is a keystone initiative under the stewardship of TRX City Sdn Bhd, an agency wholly owned by the government of Malaysia.

The Government’s Economic Transformation Programme, of which the TRX financial district is a critical component, aims to advance Malaysia’s international competitiveness and more than double per capita income to US$15,000 by 2020.

TRX aims to provide a venue for the world’s biggest financiers to take advantage of Malaysia’s geostrategic location in South-East Asia, China, India and the Middle East.

The government is also providing attractive incentives for qualifying TRX tenants within the retail and merchant banking, insurance, Islamic banking and takaful, and capital market service sectors.

These include tax deductions on rental expenses, building ownership costs, renovation and relocation costs as well as related stamp duty exemptions. The short term measures will help TRX build a critical mass of international and local financial and Islamic banking players needed to fast track the financial district development and attract the right talent to work in the district.

World-class infrastructure

The World Economic Forum ranks Malaysia 11th out of 189 countries for the quality of its transport infrastructure – something the body says is a “remarkable feat in this part of the world, where insufficient infrastructure and poor connectivity are major obstacles to development for many countries.”

TRX builds upon Kuala Lumpur’s existing wealth of infrastructure and improves on it with the largest underground mass rapid transit station in the city, a pedestrian avenue and upgraded, widened roads and links to major highways.

Through a mass rapid transit line, TRX will be connected to Bandar Malaysia, the terminus for the Kuala Lumpur–Singapore High Speed Rail, which will link TRX with Singapore’s financial center in under three hours.

Already located in a prized prime location in Kuala Lumpur’s city centre, these massive infrastructure works will enhance its accessibility and connectivity to the rest of Greater Kuala Lumpur, including a 35 -minute drive to Kuala Lumpur International Airport.

TRX is no longer a dream to propel Malaysia’s Islamic finance ambition. It is already unfolding into a reality.