Islamic Finance Case Study

DEVELOPMENT OF ISLAMIC FINANCE
CASE MALAYSIA

Contents
Brief history of development of Islamic finance 3
Takaful 4
Sukuk 5
Conclusion 5

Brief history of development of Islamic finance
Before Islamic Finance appears Muslims in the world had only one option in dealing with finance, they had to use the conventional financial system. Islamic Finance appears in late 1960's when it proofs that Muslims need an alternative solution for the conventional financial system. The first mention of Islamic Finance we can trace back to 1963, the period of the establishment of Pilgrims Fund Board. It served for saving money for costs of performing annual pilgrimage.

In that period Malaysian National fatwa was given that conventional insurance is haram due to the presence of elements of forbidden activities. In 1984 Takaful Act was enacted. Rapid growth, if Takaful in Malaysia happened since the first Takaful was established. First Takaful insurance operator was established in 1985 called Syarikat Takaful Berhad. In 1997 a re-takaful operator was formed. In 2002 the Malaysian Takaful Association was established to promote and enhance self-regulations. In 2004 there were 11 registered takaful operators with more than 80 thousand agents who provided general and family services. The net income of Malaysia's takaful industry is more than RM 7 million and the total takaful fund assets more than 23000 million. The takaful experienced rapid growth in just 33 years and it continuous growing. Malaysia puts clear vision and mission in a development of Takaful. They move toward sustainably and profitable and growing takaful industry. Industry to whom it can be trusted. They do a great effort in promoting and representing takaful and its benefits. In Malaysia, family takaful drives the Malaysian market. It is estimated around at RM6,5 billion. Family takaful's market penetration rate is still below market potential. Currently is is just 14.5% in comparison to life insurance's market 41.2%. Overall, insurance penetration rate is 55,7%.

First ever issued Sukuk was in 2002 with RM600million. After in 2007, Sukuk guidelines were issued under Capital Markets and Services Act 2007 by Securities Commission Malaysia. In past few years, sukuk has experienced solid growth as annual issuances almost tripled from $45 billion in 2011 to $118 billion in 2014. The market has witnessed increasing issuances in foreign currency Sukuk, especially in USD. Sukuk market had reached a higher level by wider issuer base, more cross-border activity, and more innovative issuances. Today Malaysia is the biggest Sukuk market. Malaysia holds 67% of global outstanding Sukuk. In 2008 issued Sukuk worth $12 billion just in a few years later it was more than $80 billion. The Malaysian Sukuk market is made up of 96% of local currency issues. They are mainly from sovereign and quasi-sovereign local currency issues. The Malaysian government has been a crucial driver of the Sukuk market. Most of issued sovereign Sukuk are short-term papers with less than one year tenors and few of them with long term.Pricing and tradability are the two main factors that an issuer would consider before deciding on a market and Malaysia is known for Sukuk tradability which would put the issuer in a better pricing