Promote the Development of Islamic Banking and Retakaful Business.

1. Recommendation 1 : Strengthen Islamic banking and finance as well as Islamic insurance (takaful).

   The strong Islamic banking, finance and takaful foundation already established in Malaysia provides a platform from which Labuan can be developed with a strategic focus on Islamic products and services. There is also a growing interest on Syariah-based financial services and products in the global financial market. These opportunities for the development of a niche market in Islamic banking, finance and retakaful can be pursued in the following initiatives:

   1. Development of the International Islamic Financial Market (IIFM)

      Given the rapid growth in Islamic funds and growing interest in Islamic financing and investment globally, there is a strong basis to build a broader, deeper and more liquid Islamic financial market.  This would allow issuers, investors and intermediaries access to the same benefits of liquidity and price discovery that are available to conventional players in conventional markets.  It would be a key contributor to the expansion of Islamic financing globally and, an essential precondition to the Islamic system to compete with the conventional system.  Additionally, this is clearly an important driver to the efficiency, effectiveness and stability of Malaysia’s own increasingly important Islamic banking sector.  Once the IIFM is developed (which would encompass a money and capital market), it would have a synergistic role in enhancing the flexibility and risk-management requirements of domestic Islamic financing.

   2. Establishment of a consultative financial markets Syariah Advisory Council (SAC)

      This is to provide input for the development of Islamic banking, finance and takaful in the IOFC. As the champion for the development of the market, the IOFC has a crucial role to play in defining the standards and rules required in making the market function smoothly.  It will provide the first mover advantage in building a critical mass of market participants and position Malaysia as a centre for Islamic finance with spin-off benefits for the economy.  To ensure that the SAC has the credibility and acceptance in the global financial community, it will have international representatives, scholars and practitioners with strong credentials and wide experience.

   3. Increase the number of Islamic players in the IOFC

      To develop the Islamic niche in the IOFC by building a critical mass of players and providing the range of Islamic financial instruments.  Interested financial institutions and takaful operators would be invited to set up Islamic operations in Labuan IOFC as participants in the IIFM.  In particular, Islamic institutions from the Middle East will be encouraged to set up operations in Labuan. As for Islamic instruments, the Government and large Malaysian conglomerates will be encouraged to capitalise on the readily available large investor market generated by the IIFM to issue Islamic financial papers.

   4. The IOFC to develop retakaful business with global reach and capacity

      The growth of takaful and Malaysia’s expertise in developing Islamic insurance products has gathered momentum. Globally, there are less than 40 takaful/retakaful operators, mostly based in Saudi Arabia and Sudan. Estimates indicate that takaful sector would grow by 25-40 % annually. There is currently also no strictly Islamic reinsurance available globally.  The retakaful business remains an important potential area of business.  There is therefore an opportunity for Malaysia, with Labuan as the natural domicile for the industry, to develop the global retakaful business in the longer term.