UNIVERSITI TEKNOLOGI MARA

BACHELOR OF ACCOUNTANCY (HONS)

FINANCIAL MARKET

(MAF 630)

GROUP PROJECTSTRATEGIES FOR THE DEVELOPMENT OF MALAYSIAS ISLAMIC CAPITAL MARKETGROUP MEMBERS NAME & MATRIX NO. :

1) SITI UMMUL ZALIKHA BT MOHD ZALI 2) FARHANAH BT JAIS

3) NOR EMILIA BT AHMAD ZAM ZAM

4) NUR ATIYAH BT MANSOR 5) SHAMSIAH BT JURAIMY LECTURERS NAME : DR NORLI BT ALISUBMISSION DATE : 24 DEC 2012

INTRODUCTIONThe Malaysia capital market is unique because it has two types of capital market. There are Islamic and conventional those operate concurrently. The definition of Islamic Capital Market (ICM) is an investment and financing activities and products are structured in accordance with Shariah principles.It refers to the market where activities are carried out in ways which does not conflict with the principles of Islam. Besides that, the Securities Commission Malaysia define the ICM as a market transactions are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam. Here, there is assertion of religious law so that the market is free from activities prohibited by Islam such as usury (riba), gambling (maisir) and ambiguity (gharar). The ICM is a component of the overall capital market in Malaysia. It plays an important role in generating economic growth for the country.The ICM is ideally characterised by the absence of interest based transaction, doubtful transactions and stocks of companies dealing in unlawful activities or items (Alhabshi, 1994). The two main reasons that ICM have been identified to support the emergence of Malaysian ICM are the 1997 Asian Financial Crisis and the liquidity problem resulting from surplus funds the Islamic finance industry. Following the Asian Financial Crisis, the products innovation, infrastructure facilities, policy incentives, human capital development and financial regulations are the main focused by the Malaysian government.

The ICM functions as a parallel market to the conventional capital market, and plays a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia. There development of this ICM is remarkable and received attention from all over the world. To develop the ICM in Malaysia, there used many strategies that will be discuss later on. THE DEVELOPMENT STRATEGIES

From our research, development of Malaysia Islamic capital market, in overall stability of Islamic financial services sector is:

Islamic banking to mobilize deposits and provide financing

Takaful to provide mutual protection/institutional investor role

Islamic capital market to provide long term fund raising and investmentOne of the strategies to develop the ICM in Malaysia is by establishment the Islamic financial fund. The foundation of the Islamic finance in Malaysia can be traced back to the birth of the Pilgrims Fund Corporation in November1962. The first Islamic financial institution established in Malaysia is The Pilgrim Fund Board (Tabung Haji) based on a merger with Penang-based Pilgrimage Affairs Management Office in 1962. The purpose was to boost its services in mobilising savings of Muslim who wanted to intend to perform the pilgrimage (Haji) and its course, channel funds to permissible investments according to the principles of Shariah. Bank Islam Malaysia Berhad was set within the institutional framework of up as the full-fledge Islamic bank in the country in September 1983.

Developed in Malaysia using a combination of approaches and have evolved over time to meet the needs of the local population. Malaysia is among the pioneers in Islamic finance and has a successful track record in innovating and commercializing many Shariah-compliant products. Arising from this, Malaysias Sukuk market has evolved into the worlds largest with Bursa Malaysia as the leading exchange for listed Sukuk in terms of value. Malaysia is also among the global leaders in the Islamic fund management industry. Malaysia already has the advantage of having a capital market where the majority of assets are Shariah compliant, which therefore attracts participation of both Shariah and conventional investors. The broad customer demand and liquidity provide positive reinforcement while Islamic products and services also benefit from the advantages of the broader investor protection framework with the additional assurance of greater consistency and clarity in Shariah governance.

Greater internationalization of the capital market is a critical aspect of the strategy to strengthen. Malaysias positioning as a global ICM hub. This will be complemented by strategies to strengthen the distinctive value propositions offered by Malaysia for a broad range of Islamic intermediation activities the range of Shariah-compliant stockbroking and portfolio products and services. At the current stage of development, there is also a need to strengthen the service and operational infrastructure so that domestic Islamic products and services can be effectively marketed to global customers. This requires a widening of international distribution channels coupled with intensied proling of Malaysias ICM.

In order to promote Malaysia as a major hub for International Islamic Finance, the countries financial and market regulators, including the Central Bank of Malaysia, Securities

Commission Malaysia (SC), Labuan Offshore Financial Services Authority (LOFSA) and

Bursa Malaysia, together with industry participation from the banking, takaful (Islamic insurance) and capital market sectors in Malaysia have launched the Malaysia International

Islamic Financial Centre (MIFC) in August 2006. The focus of this centre is on the areas such as; Sukuk origination, Islamic Fund and Wealth management, International Islamic Banking, International Takaful- Takaful (Islamic insurance) and Human Capital development. Apart from this, Securities Commission with collaboration of other regulatory bodies, has played an important role in formulating a facilitative regulatory framework to strengthening and sustaining Malaysia as an international hub for Islamic Capital Market.

There is also a need to accelerate the building of critical mass for the onshore portfolio management. The development of a significant Islamic fund management industry is critical to build domestic take-up capabilities for innovative domestic and international Islamic products. In this regard, widening the range of Shariah-compliant products in the form of collective investment schemes, indices, ETFs and REITs and the diversity of their investments by sector and by geography, can attract more domestic and international investors. Mutual regulatory arrangements to facilitate cross-border distribution will be expanded. A seeding strategy will be developed to increase the diversification of Islamic investment strategies and styles.

Priority will be placed on nurturing Islamic fund management services with high value-add such as the Shariah-compliant venture capital and private equity industries that invest based on the principles of active partnership and risk-taking, and socially responsible investing based on Islamic principles. In this context, the Islamic fund management industry will play a key role in developing products and services that not only generate economic returns but also comply with universal ethical standards to strengthen the distinctive value proposition of Malaysias ICM.

In order to further facilitate internationalization of the ICM, the Securities Commission Malaysia (SC) will promote a shift from a Shariah-compliant approach to a Shariah-based approach where the underlying structures of products such as mudarabah and musharakah would originate from risk-sharing principles and offer signicantly different pricing and returns characteristics. There is a need therefore to focus on product innovation and development efforts that will provide a comprehensive array of Shariah-based products for the industry. Towards this end, there will be further development of the Shariah legal, regulatory and governance framework. The shift to a Shariah-based approach will require a higher level of risk tolerance and acceptance of the longer gestation arising from participating in business ventures with more direct linkages between risk and returns.

The modern Islamic financial products and services are developed using two different approaches. The first is identifying and modifying existing conventional products and services to comply with Shariah principles. The second approach is the innovation of new products and services that involves the application of various Shariah principles .As can be see,the Malaysian Islamic capital market products are mainly divided into five categories of; Shariah compliant securities, Shariah-based Unit Trust Fund,

Islamic Exchanged Traded Funds (ETF), Islamic Real Estate Investment Trusts and Sukuk(Islamic Bond).

There is a significant product innovation and sophistication all over the world and Shariah compliant products have proven to be attractive also to non-Muslim investors and offer many opportunities, even to non-Islamic institutions.

The SC will also collaborate with the industry to identify potential hub opportunities in ICM-related services, particularly in the provision of middle and back ofce functions. This will be supported by initiatives to ensure a facilitative operational, tax and human capital infrastructure to enhance the attractiveness of Malaysia as a base for regional and international operations. The depth and width of Malaysias ICM has broadened the base of intermediation capabilities in terms of Shariah research, advisory and compliance expertise.

The Shariah Advisory Council (SAC) in 1996. Assisted by the Islamic Capital Market Development (ICMD), the scope of jurisdiction of SAC is to advise the Commission on all matters related to the comprehensive development of the Islamic capital market and to function as a reference centre for all Islamic capital market issues. In addition, the SAC is in charge to analyses the Shariah principles which can be used for introducing new Islamic capital market products and services, and also the existing conventional capital market instruments to determine the extent to which these instruments comply with Shariah principles.

Further efforts will be made to enhance Malaysias contribution to Shariah research through increased international collaboration on Shariah research and product development to sustain the rapid pace of innovation. The Securities Commission will also develop a code of conduct for Shariah advisers and further strengthen training and professional education to increase the supply of Shariah experts on a broad range of capital market activities and to maintain Malaysias position as a leading centre for ICM.Malaysia has taken an initiative to cultivate the growth of various innovative Islamic finance products either under banking sector or Islamic Capital Market to ensure participations from local or foreign market players. At present, a holistic range of innovative Islamic capital market products from equities to debt securities across all sectors and industries are being offered by Bursa Malaysia. Strategic differentiation in identifying, designing to produce products and services that customers perceive as being different in ways, that are important to them is the key to sustainability in this market.

CONCLUSION

The ICM is growing rapidly and vibrantly. At present, Malaysia faraway exceed other Muslim countries in term of capital market infrastructure with persistent support by Malaysia government providing impulsion for the growth of Malaysia ICM. The support and leadership provided by the government through the facilities and incentives has ensured the success of ICM development in Malaysia.

Initiatives taken by the Malaysia government towards a global hub are substantial. By looking in every perspective are being well focused. REFERENCESSecurities Commission Malaysia website:http://www.sc.com.my/index.asp?language=m

http://www.sc.com.my/sub.asp?pageid=&menuid=267&newsid=&linkid=&type=http://www.sc.com.my/clients/sccommy/Links/IDB_conference.pdfhttp://www.sc.com.my/eng/html/icm/11_2Q_msianicm.pdfhttp://www.sc.com.my/eng/html/resources/annual/ar2003_bm/pebangunanicm.pdfBank Negara Malaysia website:www.bnm.gov.my/Other:

http://icapitalmarket.blogspot.com/2010/10/what-is-islamic-capital-market.html