Malaysia has, for the first time, emerged as the global leader in Islamic banking and finance (IBF), according to the Global Islamic Finance Report 2016, overtaking Iran. (This article first appeared in The Edge Financial Daily)
Since the Islamic Finance Country Index (IFCI) was established in 2011, Malaysia had been placed second behind Iran, which had dominated the list up to 2015. This year, Malaysia reported an IFCI score of 77.77, up from 73.09 in 2015, while Iran slipped to 77.39 from 77.93 in the previous year. Over the years, Malaysia has seen a growth of 47.77 points or 159%, since registering a score of 30 in 2011.
Meanwhile, Saudi Arabia, the United Arab Emirates (UAE) and Kuwait ranked third, fourth and fifth this year, with scores of 66.98, 36.68 and 35.51 respectively. The most significant factor that helped Malaysia to emerge as the global leader in IBF is “the commitment of the government to use IBF as a policy tool and an integral part of its economic agenda”.
“Iran, on the other hand, has faced economic sanctions from the Western powers and other countries, and hence has failed to emerge as an influential player in the global Islamic financial services industry, despite the fact that it boasts of having the largest amount of Islamic financial assets in the world,” said the report. Iran may return to its first spot in the years to come once the economic sanctions are lifted, it added.
Further, the report said much has to be done to lift the Islamic finance industry, noting that the IFCI scores have not seen significant growth since 2011, and it has remained like a “cottage industry” in most of the countries where it has a presence. “Malaysia is an exceptional example. In addition to it, there are only six countries in the world [as to] where IBF is growing with a degree of significance,” it said, referring to Bahrain, Iran, Kuwait, Qatar, Saudi Arabi and the UAE.
The IFCI is a composite index used for ranking different countries with respect to the state of IBF and their leadership role in the industry on a national level, and benchmarked on an international level. It takes into account the number of Islamic banks and Islamic non-banking institutions, the presence of a central body to oversee the compliancy process, total Islamic financial assets under management and total outstanding sukuk, among others.