ESG Islamic Repurchasing, Despite Registering RM39.4 Billion In 2021 Is Just 1% Of Market

Malaysia has been ranked first among 135 countries in the Global Islamic Finance Development Indicator and first among 81 in the Global Islamic Economy Indicator, both for the 9th year running.

According to the Assistant Bank Negara Malaysia Governor Adnan Zaylani Mohamad Zahid, the Financial Sector Blueprint 2022 – 2026 sets out BNM’s development priorities for the financial sector over the next five years. One of the thrusts is to “Advance value-based finance through Islamic finance leadership” aimed at spurring growth that is progressive, sustainable, and inclusive. This includes strengthening Malaysia’s proposition as an international gateway for Islamic finance and augmenting the Malaysia International Islamic Financial Centre (MIFC) agenda. 

As part of the effort to raise the bar and catalyse global opportunities, a greater focus on opportunities is in sustainable finance. The SDGs funding gap of OIC countries is estimated at around USD 1 trillion a year, hence represents a major opportunity for us. The robust regulatory infrastructure, sound Shariah governance framework, wide international connectivity, diversified players and products, elevated by the MIFC agenda, provides a conducive landscape for the Islamic financial industry to tap into emerging opportunities in these areas of focus.

To develop the vibrant Islamic Financial Market even further, BNM has established two subcommittees: the Bond Market Subcommittee and the Islamic Financial Market Subcommittee to formulate specific market development initiatives to take the sector forward. The Islamic Financial Market Subcommittee will review the current landscape to identify and address challenges to the continued growth and development of the Islamic financial market, particularly in light of the growing importance of Malaysia’s Islamic Banking sector as well as the significance of Malaysia’s Islamic capital market, both domestically and globally.

Domestic Islamic banks account for about 42.5% of the overall commercial banking loan book and could reach 45% by the end of 2026. In the Sukuk segment, Malaysia has maintained its leadership position in the global sukuk market in 2021 by commanding a market share of 37% of the global sukuk outstanding.

The industry has already developed an encouraging track record in the sustainable finance space, as evident from the sovereign and corporate sustainability sukuk issuances to finance green and social-related projects. Islamic financial institutions now play a major role in driving the sustainability agenda in Malaysia hence, Adnan Zaylani said it is encouraging to see players such as CIMB Islamic and Standard Chartered Saadiq keep the momentum with this landmark deal which furthers Islamic finance and ESG convergence.

The introduction of ESG Islamic Repurchase Agreement is thus timely and it will further encourage the development of Islamic Repurchase market. Islamic Repurchase market registered RM39.4 billion in volume in 2021, more than double the volume in 2020. The huge potential lies ahead as the volume registered is thus far, only around 1% of the total Islamic money market volume during the year.

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