TN50 TO Boost Prospects for Sukuk Market

National Transformation 2050 (TN50) plans to provide support Malaysian Sukuk market in medium to long term, says IMF.

MALAYSIA’S vibrant and mature sukuk market will enjoy better prospects in the medium to long term, benefiting from plans under the National Transformation 2050 (TN50), says the International Monetary Fund (IMF).

“The process of issuing sukuk in Malaysia is efficient and the authorities continue to support the development of diverse instruments, including non-debt based instruments,” said Ghiath Shabsigh, IMF assistant director of the monetary and capital markets department.

“Going forward, deepening the sukuk market for infrastructure and development projects would provide a better prospect in the medium to long term,” he said in response to questions by NST Business.

The TN50 is a 30-year plan roadmap for Malaysia post-Vision 2020 that aims to transform the country’s economy, citizen well-being, environment, technology, social interaction, governance and public administration.

Shabsigh and Ross Leckow, who is deputy general counsel in IMF’s legal department, expect Malaysia’s Islamic banking to be underpinned by strong demand.

It would also likely be enhanced with progress in developing and adopting globally the relevant legal and prudential regimes and financial stability frameworks.

“Islamic banking will continue to deepen its roots in traditional markets in the Southeast Asia and the Middle East, but rapid growth is foreseen in sub-Saharan Africa and Central Asia regions,” added Shabsigh.

Leckow observed many of the legal frameworks in the Islamic world needed strengthening and standards developed by Basel would be a good starting point to design the framework.

For instance, it is not clear how the power to transfer assets and liabilities will apply to an Islamic bank which does not have a lot of debt on its balance sheet.

The syariah board, he added, was a key part to be considered in designing these regimes.

The IMF said the demand for policy advice and capacity development had risen, with the number and complexity of Islamic banking issues rising during its period of surveillance.

The IMF staff have worked closely with the authorities of countries where Islamic banking is important so as to assess their financial stability.

The Kuala Lumpur-based Islamic Financial Services Board (IFSB) had made significant progress in developing regulatory and supervisory standards for Islamic banking, they noted.

“However, additional efforts are needed by the authorities, particularly where Islamic banking is systemically important, to ensure broader implementation and more consistent application of the standards.”

Progress has also been slow in developing legal regimes and institutional arrangements for effective Islamic banking resolution that reflects international best practices.

To Shabsigh, developing high- quality liquid assets that are accepted in Islamic banking was very important as sukuk would help enhance financial stability and sound development.

“Progress on this front will also help close important gaps in the financial safety framework for Islamic banking, including developing an effective central bank lender of last resort facilities and deposit insurance schemes.”

The IFSB has played a leading and critical role in developing the regulatory and supervisory standards for Islamic banking and other Islamic financial services.

The IMF’s executive board has underscored the importance of collaboration with international bodies, including the IFSB, to address remaining gaps in Islamic banking’s prudential and financial stability frameworks.

Originally published on www.nst.com.my