Malaysia introduces new measures to maintain leadership in Islamic finance

Malaysia's Prime Minister and Finance Minister Datuk Seri Najib Tun Razak has made several announcements concerning Islamic finance in his Budget 2015 speech on October 10.

"The Government will introduce a new shari'ah-compliant investment product in 2015 called the Investment Account Platform (IAP). IAP will provide opportunities to investors in financing entrepreneurial activities and developing viable SMEs. At the same time, IAP will be a platform to attract institutional and individual investors including high net worth individuals to invest in the Islamic financial market. Initially, IAP will be implemented with a startup fund of RM150 million," he said.

"To promote investment in IAP, the Government proposes individual investors be given income tax exemption on profits earned from qualifying investment for three consecutive years," he added.

"To boost domestic sukuk and bond issuance and trading, the Government introduced the Exchange Traded Bond and Sukuk (ETBS) in January 2013. The Government proposes that the Malaysian Government Securities and Government Investment Issues be listed and traded in ETBS," he continued.

"In addition, expenses incurred in the issuance of sukuk are given deductions from year of assessment 2003 until year of assessment 2015. Therefore, it is proposed that deduction for expenses incurred in the issuance of sukuk based on ijarah and wakalah principles be extended for another three years until year of assessment 2018."

According to the Prime Minister, Malaysian Islamic finance accounts for 25% of total assets in the banking system, and Malaysia remains as the largest sukuk market internationally, accounting for 60% of the global sukuk market.

Tan Sri Azman Hashim, speaking as Chairman of the Malaysian Investment Banking Association, has praised the government’s efforts to strengthen the financial services industry, especially by promoting Islamic finance at the domestic and international levels. 

"The Government has encouraged developing a new shari'ah-compliant investment product in 2015 called the Investment Account Platform (IAP). It will provide opportunities to investors in financing entrepreneurial activities, developing viable SMEs and will serve as a platform to attract institutional and individual investors including high net worth individuals to invest in the Islamic finance market.

"The Budget 2015 has also proposed that deduction for expenses incurred in the issuance of sukuk based on ijarah and wakalah principles be extended for another three years until year of assessment 2018. We believe these measures will help promote Malaysia as a preferred destination of Islamic finance as we will be able to leverage on our robust and comprehensive Islamic finance ecosystem as well as pro-business environment," he said.

"At Maybank, we are very pleased to note that Budget 2015 placed the financial system's direct and facilitative roles in the economy's growth and development, high on the agenda. At the outset, the Budget sets out to invigorate services sector, where financial services, accounting for 16% of services sector GDP – make it the largest activities within services," noted Datuk Abdul Farid Alias, Group President & CEO of Maybank, who is also Chairman of the Association of Banks Malaysia.

"This is evident with measures like the extension of deduction for expenses incurred in the issuance of sukuk under ijarah and wakalah principles until 2018, as well as the incentives for SMEs, such as the shari'ah-compliant Investment Account Platform (IAP), the RM5 billion Services Sector Guarantee Scheme and the proposed 1 percentage point cut in SME income tax rate for assessment year 2016. The IAP in particular offers great news for the Islamic banking industry and more specifically for Maybank Islamic, as we are among the few Islamic banks which are embracing the Investment Account enhancement under the Islamic Financial Service Act (IFSA). 

"We believe the Investment Account Platform (IAP) is moving the industry to the right direction. We also see opportunities from capital allowance incentives for automation in labour-intensive industries which are predominantly in the SME space. These gel nicely with Maybank's strategies of 'Islamic First' and growing our SME financing, and will further boost the banking industry’s effort to innovate and create further value for our customers and our stakeholders."