Global Connectivity In Islamic Financial Markets - The Need Of The Present

The appetite for financial products that comply with Shari'ah or Islamic law is on the rise; with estimates for the total value of Islamic financial assets globally standing at approximately USD1 trillion. However, the development and progress of the Islamic finance market has not been uniform by any means and is characterised by its fragmented nature within several regions across the globe. Bursa Malaysia's Global Head of Islamic Markets, Raja Teh Maimunah further illustrated this scenario at the World Islamic Banking Conference in Bahrain today, where she presented a paper on "Establishing Global Connectivity".

She elaborated that sukuk origination is predominantly in Malaysia, UAE, Bahrain and Saudi Arabia,Islamic funds are mainly concentrated in Malaysia and the GCC, whilst Islamic ETFs are mostly concentrated in EuropeToday, the largely-fragmented Islamic finance industry is further exhibited by 10,000 Shari'ah compliant companies, which are listed in 40 different markets worldwide. It is believed that this geographical divide between Islamic markets, if not eliminated, will continue to hamper the growth in globalising Islamic finance. The sustainability of the industry hinges on its ability to present itself as a viable alternative financial market.

"Currently, Islamic markets worldwide are insular and highly focused within their domestic markets. Not only are products not accessible across markets, the absence of a uniformed regulatory framework and price opacity further dissuades participation from non-faith based players," quipped Raja Teh.

"A more connected or "integrated" market that bridges the resources of the Middle East, Asia, Europe and Africa would not only facilitate access to a wider range of Shari'ah compliant products, but it would also encourage product development/enhancement and diversity, price transparency and perhaps more importantly, liquidity," she added.

Promoting market linkages refers to bilateral or multilateral arrangements between market operators and regulators to enable cross-border product distribution, movement of professional intermediaries, links between exchanges and market participants and reduce friction that would otherwise raise the cost of cross-border transactions and market access. Such a move could also facilitate harmonisation of regulatory and governance framework.

"Only with the establishment of multilateral trading arrangements, can we then share our inventory of tradable Islamic products, through mutual recognition of differing regulatory framework and defining governance oversight roles. Consequently, issuers will have the option of a single listing venue yet have access to a wider investor base through multiple trading venues. Such an arrangement will provide greater visibility for Shari'ah compliant products which in turn result in greater liquidity and pricing efficacy, affirmed Raja Teh.