Islamic Banking

Malaysia Bolsters Islamic Finance Status With New Bahrain Agreement

Vanessa Doctor Asia Editor 26 January 2010

Malaysia Bolsters Islamic Finance Status With New Bahrain Agreement

Bursa Malaysia, the Malaysian exchange, has signed a memorandum of understanding with the Bahrain Financial Exchange in a deal that marks another milestone in the country's goal of becoming a global hub for Islamic finance.

In a speech delivered at the signing ceremony on 24 January, Bank Negara Malaysia deputy governor Dato Mohd Razif Abd Kadir said that the MOU would unlock a wider range of new financial instruments and provide another dimension to the liquidity management infrastructure of the Islamic banking industry. It can be recalled that during the 2008 global financial crisis, Islamic finance has emerged strong, with companies engaged in shariah banking practices plodding on unscathed.

"Awareness and appreciation of the inherent strengths of Islamic finance and its vast potential for progress have generated interests amongst the global financial community. Needless to say, the Islamic finance community should take advantage by increasing the role of Islamic finance in linking with the different parts of the world," said Mr Kadir.

The deal further strengthens the Bursa Suq Al Sila' multi-currency exchange-traded platform, which was established in August 2009 by the Central Bank of Malaysia, the Securities Commission, Bursa Malaysia, and several other market players. According to Kadir, the MOU would build a more transparent and streamlined practice based on murabahah or tawarruq principles and eliminate uncertainty between transactions.

"Over time, in making it into a multi-commodity global exchange, the scope of the product offerings could be expanded to include other commodities and the level of participation should be expanded to include players from outside the financial services industry, as well," Mr Kadir added.

Bahrain and Malaysia has one of the strongest relationships in terms of financial services, after signing an MOU in 2001 to jointly develop Islamic finance internationally. The Malaysian Islamic money market is expected to grow significantly over the year, after delivering around $2 billion worth of transactions in 2009. Globally, the commodity murabahah market is estimated to be worth over $1 trillion.

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