KUALA LUMPUR (May 10): Malaysia has for the first time emerged as the global leader in Islamic banking and finance (IBF), according to the Global Islamic Finance Report 2016 (GIFR 2016), after overtaking Iran in terms of the Islamic Finance Country Index (IFCI).
Since the IFCI was established in 2011, Malaysia has been placed second, behind Iran, which had dominated the list up to 2015. In 2016, Malaysia reported IFCI of 77.77, up from 73.09 in 2015; while Iran saw a lower IFCI of 77.39, from 77.93 in the previous year.
Over the years, Malaysia has seen growth of 47.77 points or 159%, since registering a score of 30.00 in 2011.
Meanwhile, Saudi Arabia, United Arab Emirates and Kuwait ranked third, fourth and fifth with scores of 66.98, 36.68 and 35.51 respectively.
"There are a number of factors that have helped Malaysia to emerge as the global leader in IBF, but the most significant of these is the commitment of the government to use IBF as a policy tool and an integral part of its economic agenda.
"Iran, on the other hand, has faced economic sanctions from the Western powers and other countries, and hence has failed to emerge as an influential player in the global Islamic financial services industry, despite the fact that it boasts to have the largest amount of Islamic financial assets in the world.
"The lifting of economic sanctions on Iran may bring it back to the first position in the years to come," said the report.
Overall, however, the report said much has to be done to lift the Islamic finance industry, noting that the IFCI scores have not seen significant growth since 2011.
"Despite huge focus on IBF in some circles, IBF remained like a 'cottage industry' in most of the countries where it has registered its presence. The average IFCI scores on a global level have not increased significantly between 2011 and 2016. This means that on a global level, IBF has yet to receive any meaningful recognition.
"Malaysia is an exceptional example. In addition to it, there are only six countries in the world [as to] where IBF is growing with a degree of significance," it said, referring to Bahrain, Iran, Kuwait, Qatar, Saudi Arabi and United Arab Emirates.
The IFCI is a composite index used for ranking different countries with respect to the state of IBF and their leadership role in the industry on a national level, and benchmarked on an international level.
The index takes into account the number of Islamic banks and Islamic non-banking institutions, the presence of a central body to oversee the compliancy process, the total Islamic financial assets under management and the total outstanding sukuk, among other factors.