Islamic Finance Is Thriving In Malaysia, Says BNM Governor

Malaysia’s Islamic banking industry is not only maintaining its position in the financial landscape but is also thriving, showing signs of maturity and poised for significant growth. Contrary to any suggestions that the industry might be losing momentum, the latest data reveals a robust upward trajectory.

Islamic financing now accounts for an impressive 34.1% of total financing in the country, a substantial increase from 14.9% in 2008. Similarly, Islamic banking assets have grown to 31.4% of total banking assets, up from just 14% in 2008. These figures underscore the strong and sustained growth of the Islamic banking sector over the past decade.

Looking ahead, the growth of Islamic finance in Malaysia is expected to be increasingly driven by the industry itself, as it continues to innovate and expand into new markets. Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus, in an exclusive interview with Bernama, emphasized that Islamic banking is not only maintaining its growth but is also gaining market share through its self-propelled momentum.

“Islamic banking is not slowing down; rather, it has been accelerating its growth. The industry is leading its expansion, entering new markets, and consistently increasing its share in the financial sector,” said Datuk Nor Shamsiah.

Addressing concerns that the Islamic finance sector might lack solid development and momentum, she reiterated that the industry continues to record healthy growth and is actively integrating social finance into its product offerings. This integration is aimed at enhancing accessibility, governance, and transparency within the sector, aligning it more closely with the ethical and social principles inherent in Islamic finance.

“There is significant value in merging Islamic banking with social finance principles. In Islam, concepts like ‘sedekah’ (voluntary charity) and ‘zakat’ are fundamental. Islamic banking has the potential to facilitate these contributions, promoting socio-economic development in the country,” she explained.

By leveraging Islamic banking frameworks and integrating social finance mechanisms, products such as sedekah, wakaf, and zakat can be more effectively utilized to improve the livelihoods of marginalized and underserved communities. This approach reflects a broader vision for the future of Islamic finance in Malaysia, where development initiatives will prioritize quality growth and value addition to uplift the well-being of the population.

Supporting this positive outlook, RAM Rating Services, in its recent “Islamic Banking Insight” publication, projected that the Islamic banking sector in Malaysia is expected to grow between 10% and 11% this year, matching the growth rate achieved in 2018. This growth rate far surpasses that of conventional loans, which grew by only 3.3% last year compared to the Islamic banking sector’s 11% expansion.

In 2017, the sector also posted a solid growth rate of 10.3%, further highlighting its resilience and capacity for sustained expansion. RAM Ratings has maintained a stable outlook for the Malaysian Islamic banking sector, reflecting its positive assessment of the overall domestic banking system.

As the industry continues to mature, Malaysia’s Islamic banking sector is set to play an increasingly important role in the global financial landscape, driven by innovation, market expansion, and a commitment to socio-economic development.