KUALA LUMPUR: Malaysia has all the ingredients to be a success story in Islamic finance but it will not come by itself, according to Prof Volker Nienhaus.
He advised the country to prepare itself for the second phase of competition with the new entrant of Islamic finance markets such as South Korea and Thailand.
“One has to identify and take it as a challenge and not to compete with the first phase of South Korean or Thai initiative but prepare for the second phase. Let them prepare the market but be prepared for the second phase,” Nienhaus told StarBiz in an interview. Nienhaus is a visiting scholar under the Securities Commission (SC)-Universiti Malaya (UM) Visiting Scholar Programme.
He is a distinguished professor in economics and was one of the members of independent jury for The Royal Award for Islamic Finance 2010, which was established under the Malaysia International Islamic Financial Centre (MIFC) initiative and supported by Bank Negara and the SC.
Nienhaus said many countries were trying to come into Islamic finance because they would like to attract investment from the Gulf area.
“It will be difficult to position Malaysia as a kind of hub between South Korea and the Middle East because the more you conventionalise Islamic finance in Malaysia, the less you need a broker as they can approach the Middle East directly.
“But I have some doubts if (South Korea) is a very big market. There are not too many immediately viable projects in South Korea that are appealing to investors from the Gulf,” Nienhaus said.
He said Malaysia had a dedicated government supporting the development if Islamic finance and this had led to a regulatory structure which was much more supportive and elaborate than in many other countries.
“Because of this, it is a surprise that I recently read an article that the market share of Islamic finance for deposit is about 15% to 17%, but only 20% of this deposit comes from the general public. The rest is from government and corporations. So, this is not very different from the Gulf region,” he said.
Nienhaus said maybe some of the issue that have been discussed in the Gulf also apply here, such as the lack of innovative product from retailers for the general public.
Nienhaus will be delivering a public lecture entitled: “Building Blocks of Islamic Finance: Regulation and Syariah in Perspective” tomorrow at the Securities Commission, Bukit Kiara.