Islamic Finance Industry Council (IFIC)
IFIC will provide cross-border linkages between Malaysia and the United States through promotion made available through Islamic Finance to meet the demand of the domestic market place and international investors.
IFIC promotes the internalization of Islamic finance by forging strategic and collaborative partnership between Malaysia and the United States where its market and society can benefit from the economic and financial linkages. In the interest of shaping internalization of Islamic finance collectively, IFIC will facilitate the cross border connectivity.
The IFIC Co-Chairman for 2015 - 2017 are:
Why Islamic Finance between U.S. and Malaysia?
There has been a significant global demand for Islamic Finance over the past decade and has become an actively used offering in the global financial landscape.
According to Dubai-based AlHuda Centre of Islamic Banking and Economics (CIBE) in 2015 the Islamic finance is projected to exceed US2.5 trillion of assets globally with more financial institutions and issuers adopting this alternative instruments as a relevant offering. Today there are more than 600 Islamic financial institutions operating in 75 countries.
To what would you attribute this steady growth? And is U.S. missing the opportunities? The post-financial crisis reforms implemented in the U.S. financial industry, has reinforced the importance that financial system needs to serve the real economy with the main purpose to effectively intermediate savings and excess funds to generate economic growth.
In this regard, the universal values in the U.S. initiated financial reform is also inherent in the principles of Islamic finance which can then be appreciated by people of different faiths and used by all. The additional requirements in Islamic finance, which strongly discourage excessive risk taking and speculative business activities, provide additional safeguards for stability and resilience in the global financial system.
Malaysia – The Epicenter for Islamic Finance
In evolving Malaysia as an Islamic financial marketplace, the goal is to be an open marketplace (like New York as a financial center) that is linked to network of other financial hubs. The business environment that is conducive particularly in cross border fund raising activities, as well as fund and wealth management activities has attracted many foreign corporations, financial institutions and investors to opt for Malaysia as their base for Islamic financial businesses including U.S. grown asset management companies namely Principal Financial Group, Franklin Templeton, Columbia Thread Needle and Saturna Capital Corporation. Malaysia offers a multi-currency platform for international fund raising and for investment activities by multinational entities. In demonstrating its leadership as the world's largest issuer of Sukuk, in which from 1996 to Q3 2013 a total of 2,438 international and domestic Islamic papers were issued, equivalent to US325 billion worth of sukuk, with 67% sovereign, 13% quasi and 20% corporations.
Islamic Finance – No Stranger to the U.S. Financial Market
Islamic Finance is not new in the U.S., the first Islamic-style community banking in the world was opened in September 15, 1945 in Chicago, IL. That entity is now named Devon Bank with full Islamic banking offerings of total asset of US248 million, followed by Guidance Financial Group with a commendable total Islamic mortgage asset of US2.3 billion. Even the world's first Islamic capital market initiative with an Islamic-style ethical based asset management house was established in U.S. in 1989! Saturna Capital Corporation has the largest Islamic Asset Under Management (AUM) in the world of about US6 billion followed by Principal Financial Group of Des Moines Iowa with Islamic AUM of close to US2.5 billion! If this is news to you might want to also know that KMS Investment Bank established in U.S. in October 1994 was focused on offering Islamic capital market instruments as its mainstream.
These developments in Islamic capital markets were followed by other Islamic bond issuances (Sukuk) by International Finance Corporation (IFC) a supranational being a subsidiary of The World Bank. For the last 11 years from 2004 to 2014, IFC has issued 3 different Sukuk denominated in Ringgit Malaysia, Eurodollar and US $. IFC is said to be in the discussion for its 4th Sukuk issuance in 2015. There were also corporates fund raising via Sukuk issued by East Cameron Partners in July 2006: US167.67 million and GE Capital in 2009: US500 million. The potential funding for U.S. infrastructure projects under Build America Investment Initiative (BAII) totaling US3.6 trillion by 2020 could be an impetus for the U.S. Federal Government to access Islamic capital through Public Private Partnership. The U.S. Capital markets can lay its roads into the Islamic capital markets by tapping the sukuk fund raising, to which, Sukuk generally guarantees a broader investor base internationally.
Also worth noting that the U.S. being the jurisdiction with the largest share of pension fund, accounting for 61.2% of Top 19 countries surely these pension funds are deprived of the opportunity to diversify into alternative instruments that is ethical and yet delivering comparable risk-return with the mainstream products. In fact empirical evidences reveal that investing in Islamic global strategies in the last 8 years has demonstrated an out-performance of its returns, if compared to its conventional counterparts.
Malaysia’s approach to Islamic finance is by continuing to facilitate the internationalization of products, services and expertise, through deepening cross -border linkages and partnerships. Thereby, collectively shaping the Islamic finance landscape for the world and contributing towards the stability and resilience of the world's financial markets. Whilst, mainstreaming Islamic Finance with traditional capital market.
The Islamic Finance Industry Council is committed to connect these cross border opportunities to facilitate that both Malaysia and U.S. achieve its respective aspirations.
Image Sources: IMF, MIFC, KFH and Pew Research