CONTRIBUTION TO ECONOMIC GROWTH

    Islamic capital market (ICM) has evolved into both equity and debt markets. These have in turn paved the way for a dynamic Islamic capital market facilitating cross-border capital flows and funding activities. As a result, ICM continues to record an increasing growth rate each year. ICM is one of the components of the total Malaysian capital market. It contributes a lot to the economic development of the country. ICM serves as a parallel market with the conventional capital market to develop and deepen the Malaysian Islamic financial market.

(Source- Malaysian Islamic Capital Market Bi-Annual Bulletin by the Securities Commission Malaysia)

    There are four key contributing factors to the growth of ICM in Malaysia. Firstly, the role played by Islamic Financial Services (IIFS) is mainly, Islamic banks and takaful operators, which act as both issuers and subscribers in the burgeoning ICM sector. This is because, IIFS plays an important role as market players in creating demand and supply for ICM products by providing adequate short, medium, and long-term liquidity to the market thus adding to the choice of customers. For example, the ICM products offered by Bank Islam such as Government Investment Issues (GII) and Corporate Sukuk.

    Secondly, the growing need for high-quality liquidity management instruments also creates a demand for both short-term and long-term funding facilities. For example, the high demand for Sukuk in Malaysia as it becomes the fixed income asset of choice among investors because its offers decent yields and lower volatility compared to other instruments.

    Thirdly, ICM products and services are in high demand due to the increased in interest for Shariah-compliant investment platform. There are some reasons Shari’ah funds are gaining popularity amongst investors and one of it is, Shari’ah funds has a diversified asset allocation and hence, it can help investors to enhance risk-adjusted returns.

    For instance, the sectoral allocation is well distributed across many sectors, hence it is effectively diversifying sector-specific risks. The fact that interest profits are prohibited under the riba principle of Shariah law means that, despite the financial sector's excellent performance outlook, the category has essentially no exposure to it. A good solution would be to invest in a financial services sectoral fund. With that, it result a positive indicator for the ICM's future prospects, indicating that the market will continue to expand to other jurisdictions.

    Lastly, the other factors that can contribute to ICM’s growth is, the rising demand for infrastructure financing. The expanding infrastructure funding requirements of both the private sector and governments are also boosting the expansion of ICMs. Ironically, infrastructure financing is viewed as the best fit for Islamic finance, which needs rewards to be obtained from shared company risk and the asset-backed notion.