Role of Islamic Capital Market in Economic Growth Zainal Izlan Zainal Abidin Executive Director, Islamic Capital Market Securities Commission Malaysia 1

Role of ICM in Economic Growth 2  OIC countries are expected to record higher average GDP growth compared to the global average over the next five years  Opportunity for Islamic capital market to facilitate mobilisation of wealth and funds to support sustainable economic growth Sources: KFH Research, Pew Research (2011), World Bank (2013)

Global Sukuk Market 3  Total sukuk outstanding globally reached USD286.4 bn as at end 1H2014  Debut sovereign issuances in 2014 by the UK, Hong Kong, South Africa, Luxembourg  Growing diversity in the sukuk market in terms of investors, currencies, sectors, etc.

Sukuk Issuance by Sector (Global) 4 Sources: Bloomberg, Zawya, IFIS, KFH Research Selected issuances in recent years: PLUS (Malaysia) – Transport Saudi Electricity – Power Oooredoo (Qatar) - Telecom

Sukuk: Value Proposition 5 Broadens the investor/subscriber base thus providing more competitive pricing for issuers Enhances inclusiveness thus promoting more equitable wealth distribution/sharing Contributes to development and growth of Halal as well as SRI businesses and economy Provides more options for issuers and investors – facilitates diversification and reduces concentration risk

6 Year Sukuk issued to total bonds issued (%) Size of sukuk issued (RM billion) Size of total bonds issued (RM billion) Malaysia: Trend in Sukuk Issuance

Yield Comparison Between Sukuk and Bonds in Malaysia 7 Source: Bond Pricing Agency Malaysia 3-yr bond yield matrix MGS Q2 14 Q1 14 Q4 13 Q3 13 Q AAA AA A IRS 3-yr sukuk yield matrix GII Q2 14 Q1 14 Q4 13 Q3 13 Q AAA AA A IRS

Shariah-Compliant Equities 8  Classification of Shariah-compliant equities:  Attracts wider range of investors to own shares in listed companies, directly and indirectly via funds  Provides listed companies incentive to comply with screening criteria and more options for fund raising  Participating in economic growth through investment in Shariah- compliant stocks across various sectors of economy Dow Jones Islamic Market World Index - Sector Allocation Total market capitalisation – USD 23.2 tn Component number - 2,578 stocks (as at end Sept 2014) Source: S&P Dow Jones Indices

Global Islamic Funds 9  Total global Islamic AUM reached USD75.1 bn as at June 2014  Total number of Islamic funds increased to 1,069 funds  The growth, albeit gradual, is driven partly by rising wealth and portfolio diversification

Islamic Funds: Value Proposition 10 Enables pooling of resources to invest in diverse range of Shariah-compliant securities & instruments Facilitates effective mobilisation of funds to participate in various sectors & create more wealth in the economy Provides different fund structures to suit specific needs, requirements and preferences Creates opportunities for cross border linkages and businesses

Development of SMEs 11  Islamic Private Equity and Venture Capital segment can spur development of small and medium scale businesses  SC Malaysia working on regulatory framework for equity crowdfunding Source: World Bank

Building Blocks for an Effective ICM 12 ICM Ecosystem Legal and Regulatory Framework Shariah Governance Framework Tax Framework Government Support Diverse Pool of Players Strong Intermediation Institutions Talent Pool

Action Plans for ICM Development 13 Implement tax neutrality provisions for sukuk issuanceAdopt screening of equities for Shariah complianceIntensify stakeholder awareness & education programmesEnhance capacity building and research &development initiatives

Thank You 14