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NEWS UPDATES Asean Affairs        24 January 2011

Malaysia and Islamic finance challenges

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Malaysia has all the ingredients to be a success story in Islamic finance but it will not come by itself, according to Volker Nienhaus, Ph.D.

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. 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 percent to 17 percent, but only 20 percent 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.

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