3 November, 2015

11th World Islamic Economic Forum


The Hon. Tun Musa Hitam, Chairman of WIEF Foundation,
Distinguished Leaders,
Excellencies,
Participants and Guests,
Members of the media,
Ladies and gentlemen,

Bismillahirrahmanirrahim.

Assalamualaikum Warahmatullahi Wabarakatuh, and a very good morning.

1. I am very pleased to be here for the 11th World Islamic Economic Forum. It is indeed a privilege for Malaysia to host this distinguished and diverse gathering once again. Since the WIEF was founded in 2005 it has been held in locations across Asia and Europe with attendance rising from the hundreds to the thousands.

2. This Forum has grown into a truly international platform for governments, policy makers, academics and business leaders to interact, develop opportunities, and discuss policy proposals for the benefit of the Muslim world and beyond.

Ladies and gentlemen,

3. This year’s theme, “Building Resilience for Equitable Growth”, is appropriate, given the challenges facing the global economy. None of us can totally shield ourselves from the vagaries and uncertainties of rapidly changing markets and currency fluctuations.

4. It is therefore more important than ever that we build economies and businesses with high resilience so that we can preserve stability and promote equitable growth.

5. We must also address inequalities in the distribution of wealth, both across and within nations, in order to safeguard social stability and to promote an agenda of global inclusion, peace and prosperity.

Ladies and gentlemen,

6. Trade and commerce have always been the backbone of prosperity for the Islamic ummah. Since the days of Prophet Muhammad, and throughout His Madinah years, the Muslim community relied on trade for its economic expansion.

7. Later, during the various Caliphates, the Silk Road was established, running from China to Uzbekistan, then on to Iran and Lebanon, through the Byzantine Empire, and reaching Europe via the port city of Venice. Through this network, there was a cross-pollination of commercial practices, technology and knowledge.

8. Today, we have millions of small and medium enterprises thriving in communities across the Islamic world. Moving forward, we need to provide them greater opportunities to expand and to be able to compete in wider markets. In this mission, these SMEs face the same challenge as all SMEs worldwide – lack of funding. We are expecting SMEs to contribute about 41 per cent to our GDP by 2020.

9. A study by the International Finance Corporation (IFC) reported that SMEs are underserved by financial institutions. For example, 35 percent of SMEs in the Middle East and North Africa are excluded from the formal banking sector. Indeed, there is a financing gap of up to USD13 billion for SME Islamic financing in this region.

10. Thus, I am pleased to see the special emphasis given by the Forum this year to the development of SMEs. Here in Malaysia, SMEs are our largest employers; they contribute 36 percent of our GDP and 18 percent of our exports.

11. My administration has long been a strong supporter of this sector. Given their size, SMEs require greater assistance in terms of financial and other resources. And in this, I believe they can be greatly helped by another part of the business spectrum that will be, I hope, the subject of many discussions over the next two days – Islamic finance.

12. Islamic finance is currently gaining more and more visibility and is in a better position to assist the SME industry. As of last year, Malaysia’s total SME financing exposure in Islamic finance grew by 40.5 percent year-on-year, to more than USD10 billion. Islamic finance, with its equity-based partnership schemes, offers a truly workable alternative to conventional banking, a partnership that also embeds the participating financial institution as a provider of advice and consultancy.

13. With the sharing of risks, and its rewards, the Islamic requirement for fairness and equity is served.

Ladies and gentlemen,

14. It is all about wealth creation. SMEs are typically family businesses. By assisting these businesses, we help families to build a base, giving them opportunities to grow, from one generation to the next, and resources to access higher education, better health and improved living standards.

15. SMEs also increasingly involve two vital sectors of our populations – women and youth. We have many programmes here in Malaysia to increase female participation in the workforce, for as I have said before, when women succeed, we all succeed.

16. Professor Muhammad Yunus, the founder of Grameen Bank in Bangladesh, went so far as to say that the decision to lend primarily to women was the best he ever made – because they were more responsible. Some even suggest that the world would not have suffered the Financial Crisis of 2008 if Wall Street and the banks were run by women.

17. That is a hypothetical question – and we cannot know whether that would have been the case; although some female participants here may have strong views about that!

18. What we can be sure of is that by helping women in SMEs –we can raise the economic capacity of entire communities and societies.

19. As for ensuring opportunities for youth in SMEs: Well, we must enable them, so that they are bearers of promise and of hope, generations who see bright prospects for our countries.

20. In every decade, there are those who view the world as one of opportunity, not limitation, and who have helped shape our today by dreaming of a different tomorrow. So the youth in SMEs need our every encouragement to make the contribution to our countries that they want to do.

Ladies and gentlemen,

21. As Chair of ASEAN this year, Malaysia is also taking the lead in enhancing the role SMEs can play in our ten nation group’s continued development.

22. By 2020, ASEAN is expected to have a combined GDP of US$4.7 trillion – that’s well over four times the size it was ten years ago. Through the establishment by the end of this year of the ASEAN Economic Community, member states will work to expand the regional SME sector through five strategies, namely:

a. allowing SMEs to gain access to a larger and more extensive marketplace
b. lowering regulatory barriers to trade,
c. strengthening connectivity,
d. improving SME-specific policies,
e. and enhancing ASEAN’s strategic economic linkages with greater Asia and other parts of the world.

23. Currently, total global Islamic financial assets are estimated at USD2 trillion. That may be a small figure compared to that covered by conventional financial assets, but it is still very promising when one considers that Islamic finance has only started to gain traction in the last decade. In fact, it is worth recapping again its progress over that time.

24. Islamic financial institutions were well-placed to withstand the global financial crisis of 2007-2008, and emerged from it more or less unscathed. That should not be surprising, given their prohibition of speculation, prohibition of uncertainty in contractual relations, prohibition of usury, and their greater usage of risk and profit sharing.

25. Over-leveraging is believed to have been the root cause of the disaster – but again, that is prohibited in Islamic finance. As a result, Islamic banks remained strongly capitalised and resilient against financial market volatility, while continuing to contribute positively to equitable and sustainable growth.

26. Within the sector itself, growth has been tremendous. From 2009 to 2014 the annual average was 17.3 per cent.

Ladies and gentlemen,

27. Business owners are continuously seeking fund-raising instruments and investment alternatives that add value to their portfolios, as well as providing them with security against market uncertainty and volatility. In this Islamic bonds, or sukuk, are a perfect fit, with their requirement for good risk management and that propositions are linked to assets or economic activity.

28. Sukuk has gained real momentum in recent years. In 2014 alone, a number of non-Muslim countries launched sovereign sukuk: namely, the United Kingdom, Hong Kong, South Africa and Luxembourg.

29. Sukuk is also gaining a foothold among corporates and supranational bodies, such as the Islamic Development Bank, the International Finance Corporation, and the International Finance Facility for Immunisation, a body under the World Bank which recently issued its second sukuk this September.

30. Here at home, I would like to praise Khazanah Nasional’s commendable efforts in supporting the Sustainable, Responsible and Impactful – or SRI – investing agenda by issuing the first Ringgit Malaysia SRI sukuk – Sukuk Ihsan – which was fully subscribed in June this year.

31. My government made further efforts to drive this agenda in the recent tabling of the 2016 Malaysian Budget, in which I proposed tax deductions be given on the issuance costs of SRI Sukuk. This combines the principles of Shariah with Sustainable, Responsible and Impactful investing, while at the same time it potentially broadens the appeal of Islamic finance internationally.

32. I am also proud to say that Malaysia has consistently been the largest issuer of sukuk in the world. In 2014, the total global sukuk outstanding was just over USD300 billion. Malaysia accounted for USD173 billion or 57.4 per cent of the total, while Saudi Arabia, second in the ranking, accounted for USD50.4 billion or 16.7 per cent.

Ladies and gentlemen,

33. As I mentioned earlier, we live in uncertain times. The rising US dollar, the devaluation of the Yuan, the drop in commodities and oil prices – these affect us all. Yet I remain optimistic. Here in Malaysia, we expect growth of between 4.5 – 5.5 percent this year, while if the foreign direct investment we received in the first six months is matched in the second, we will be on course for another record year.

34. The programme of events here is another cause for optimism. Amongst other subjects, you will discuss Islamic fashion, Islamic social finance, the USD700 billion halal food industry, artificial intelligence, zero-waste technologies, empowering women – a cause close to my heart – e-commerce, youth start-ups, and bringing free quality education to rural areas.

35. These are all sectors that are looking towards the future – a future that promises growth and greater inclusion; one that is based on sustainability and is guided by a moral compass; one that will be resilient and more equitable; and one in which we build a brighter, fairer and better tomorrow for our children and for generations to come.

36. We can do it. We must do it. And now I leave it to the participants and distinguished speakers here to help us with the “how”.

37. With that, I wish you all a productive and enjoyable Forum.

Thank you, and Wassalamualaikum Warahmatullahi Wabarakahtuh.

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