1. I am grateful to Allah s.w.t for this great opportunity to address you  at the 16th instalment of the Kuala Lumpur Islamic Finance Forum  or KLIFF (KLIFF 2021). I would like to thank the organisers, namely Centre for Research and Training (CERT) in association with  Amanie Advisors, Association of Islamic Banking Institutions  Malaysia (AIBIM), Association of Shariah Advisors in Islamic  Finance (ASAS), and Messrs Hisham, Sobri & Kadir (HSK) for their  effort in organising this forum, which, being the 16th in the series,  has definitely become a prestigious event in the global Islamic  finance space.
    
2. The widespread multi-sectoral crisis from the COVID-19 pandemic  has been the main topic of discussion all over the world. Countries  have faced systemic shocks to their public health care, disruption to  their economy, decline in external demand, reversal in capital flows,  as well as volatilities in prices of commodities. The actual economic  fallout is hard to predict, given that factors surrounding the pandemic  impact economies in ways that are without any historical precedent  to guide anyone.
   
3. As such, despite over 14 trillion US dollars collectively allocated by  governments all over the world to reduce the impact, the IMF has  concluded a 3.5 percent contraction for the global economy in 2020,  from the impact of an estimated loss of 22 trillion US dollars from  2020 to 2025. Of more concern, is the approximately 90 million  people who are expected to enter extreme poverty by the end of this  year, with over 495 million jobs lost due to the pandemic. This has wiped out growth trends seen over the past two decades, increasing  the risk of uneven recovery and bringing about higher inequality and  socio-economic issues throughout the world. 
   
   

THE STRONG UNIVERSAL VALUES OF ISLAMIC FINANCE

Ladies and gentlemen, esteemed guests,  

4. As much as globalisation has connected businesses and people  together in a vast network, it has also brought its fair share of  challenges that will require our joint commitment and effort to  address. Even prior to COVID-19, we had witnessed intense  competition for economic dominance amongst the biggest nations,  resulting in geopolitical and trade tensions. 
   
   
5. The COVID-19 pandemic has further intensified such issues, impacting supply chains that connect most, if not all economies. Supply chain disruption will further aggravate social disparities,  where numerous studies have shown how the pursuit of cost  efficiency and competitiveness in producing goods and services, has resulted in poor social conditions for workers and the  environment1. 
   
   
6. Islamic finance and its inherent universal values can be and has  been part of the solution to these issues. Since more than a  thousand years ago, the central focus of the Islamic economy has  always been societal welfare and its supporting environment. Core Islamic principles that promote inclusivity, equity, property rights and  1 https://www.nap.edu/read/12860/chapter/13#90 ethics are very much in tandem with the United Nations’ Sustainable  Development Goals 2030 or SDG 2030. 

7. When institutionalised Islamic finance started more than 40 years  ago, no one had anticipated that it could transition from its humble  beginnings into areas such as Islamic fintech and crowdfunding.  
   
   
8. Sustained efforts and facilitation by the Malaysian Government and  regulators, together with the solid support and active participation of  stakeholders, have propelled Malaysia’s Islamic Finance from  relative obscurity to being on par with conventional finance, and  well-recognised on the world stage. I am convinced that this growth has been supported and inspired by its core principles that prioritise  welfare and equitability.  
   
   

MALAYSIA LEADS AND CHAMPIONS ISLAMIC FINANCE

Ladies and gentlemen, 

9. In line with the Financial Sector Blueprint 2011-2020, Malaysia’s  Islamic Finance penetration rate is on track to reach Bank Negara  Malaysia’s (BNM) target of 40 percent share of total financing by  end of 2020 – a significant increase from 29 percent in 2010. The  resiliency of our Islamic Finance sector has been proven throughout  the COVID-19 pandemic, where its penetration rate has increased  steadily over the first nine months of 2020. This was supported by  domestic financial institutions’ efforts to expand the sector, coupled  with strong growth in household financing. 

10. Moody’s, too, has acknowledged Malaysia as the biggest market in  Islamic Finance within the region. The growing acceptance of  Islamic financial products and services among the population – of  all races and religions – will likely be sustained for the foreseeable  future, attributable to the strong regulatory framework by both BNM  and the Securities Commission Malaysia (SC). 
    
    
11. Additionally, Malaysia leads globally with the largest Sukuk market  in 2020, accounting for more than 45 percent of the world’s  outstanding amount or approximately 258 billion US dollars,  according to the Malaysia International Islamic Finance Centre  (MIFC). Our Sukuk issuances over the years have demonstrated  how Malaysia has utilised Islamic Finance as a means to fund and  shape a more sustainable future. So far, we have seen more Sukuk  issuances that are tied to the principles of Sustainable and  Responsible Investments, or SRI. From funding renewable energy  infrastructures such as solar and hydro, to supporting social  purposes, such as micro financing and education, Malaysian Sukuk  issuers have acquired an appetite for such ventures, reflecting an  increasingly strong commitment towards a sustainable future  through Islamic financing products. 
     
12. Data from our stock market and fund management industry are also  proof that Islamic Finance has shown unrelenting resiliency and has  continued to attract investors during these uncertain times2. In 2020,  Shariah indices have outperformed conventional indices for two consecutive years. This has resulted in more demand for shariah based investments, with total Islamic assets under management  growing from 22 percent of overall assets in 2017, to 24 percent by  end of 2020 with a total value of 217 billion Ringgit. 
    
    

ISLAMIC FINANCE TO DRIVE SHARED PROSPERITY3

Ladies and gentlemen,  

13. As has been mentioned many times before, socio-economic  inequality is likely to be the biggest impact of COVID-19. We risk  losing years of improvements in the economic prospects for the  global middle class, while poverty and hunger are expected to be  more pervasive in the coming years. 
    
    
14. The pandemic has disproportionately impacted communities, such  as women, migrants, daily wage earners, as well as the Bottom 40  percent (B40). This has the potential to fuel conflicts and social  unrest that will make any recovery even more daunting.  International organisations, such as the OECD, had warned against  the ‘slow growth trap’ long before this pandemic broke out, and  expressed concerns regarding the enduring trend of overlooking our  middle-class. Some have also been calling for active public policies  to ensure inclusive growth over the years. 
    
    
15. In light of these issues, the theme “Strengthening Islamic Finance  Towards Shared Prosperity” bodes well with Malaysia’s efforts to  move towards a more inclusive, equitable and sustainable growth  for all. According to the World Bank Group, the definition of shared  prosperity is the distribution of wealth for fostering income growth of  the B40 in every country. 

16. Under Malaysia’s Shared Prosperity Vision 2030 (SPV 2030), the  Government has proposed 15 Key Economic Growth Activities  (KEGA). The first is to develop an Islamic Finance Hub 2.0, and  as I mentioned earlier, Malaysia is well positioned to lead globally in  this sector. In this regard, the financial sector will continue to  spearhead and champion this initiative. In fact, last August, the  Government of Malaysia has issued our first ever award-winning  digital Sukuk online, the Sukuk Prihatin, where the subscription had exceeded the target at 666 million Ringgit.  
    
    
17. Recently, the country has also emerged as one of the world’s  leading Islamic financial technology (Fintech) hubs that houses  various Islamic fintech start-ups4. Based on Malaysia Digital  Economy Corporation’s (MDEC) Islamic Fintech Report, a total of  26 Islamic fintech providers were operating in Malaysia in 2019,  higher than the UK (at 19), United Arab Emirates (at 16), Indonesia  (at 12), and US (at 10 in total). 
    
    
18. A key contributing factor to this is Malaysia’s comprehensive  regulatory guidelines to regulate and systematically develop the  fintech industry. There are also clear licensing requirements for  fintech players to operate equity crowdfunding, or P2P financing  platform. 
    
    

19. Other initiatives to push for shared prosperity include the  collaboration between public and private sector in utilising Waq’f  structures for social purposes. This is evident from efforts carried  out by BNM and banks, with the establishment of MyWakaf, as well  as the recently announced ‘Wakaf Air’ or Water Waq’f between the  Ministry of Environment and Water (KASA) and Yayasan Wakaf  Malaysia (YKM). Proceeds from the Water Waq’f will be utilised to  fund projects related to the provision of water services in rural areas  such as well excavation, maintenance and purchase of water  pumps, provision of mini water tanks and plumbing. 
    
    
20. The Malaysian Government has also provided for Waq’f  development in Budget 2021, through which we have announced  several measures such as: 
    
    

(a) creation of a National Wakaf Masterplan, in collaboration with  government agencies to ensure efficient management of  Waq’f funds; and 

(b) introducing Waq’f services to unit holders of Amanah Saham  Nasional Berhad (ASNB) funds. Under this service, unit holders can endow some of their units into a Waq’f fund,  where the returns will be channelled to projects identified by  the fund manager (PNB). 

Ladies and gentlemen,  

21. SPV2030 also highlights Malaysia’s potential and plans in tapping  the 3 trillion US Dollar Halal market. The Halal industry covers not only food-related products, but also pharmaceuticals, cosmetics,  self-care and health items, as well as sectors such as travel, media  and recreation, amongst others. 

22. As this industry grows, Malaysia continues to firmly entrench its global leadership, particularly on Halal certification across diverse  products’ value chain. Today, Malaysia is one of the main sources  of reference for over 150 countries in areas such as the Halal industry’s development and governance. This is also reflected in  Malaysia’s number one ranking in the Global Islamic Economy  Indicator (GIEI), where we lead in areas such as Halal food, Islamic  Finance, pharmaceuticals, cosmetics as well as Muslim-friendly  travel. 
    
    
23. Malaysia’s firm commitment in promoting the Halal industry can be  seen in our 14 billion Ringgit investments to develop Halal Parks,  where Halal-oriented businesses will benefit from infrastructure,  support services and tax incentives. This will not only drive  Malaysia’s ambitions to be a global Halal hub, but will also help the world become more resilient post-COVID-19 pandemic, guided by  the Islamic economy’s core principles of socio-economic and  environmental sustainability, as well as social equity, fair trade and  ethical consumerism. 
    
    

CHALLENGES 

Ladies and gentlemen, 

24. According to Fitch Ratings, Islamic financing’s share in Malaysia  reached 37 per cent by end-2020, compared to 35 per cent in 2019,  with Islamic financing contributing nearly all of the banking sector’s  growth in the same year. Fitch Ratings also noted that Malaysia’s  Islamic banking sector has continued to expand amid economic  challenges from COVID-19 pandemic. 
    
    
25. Although Malaysia’s Islamic Finance has progressed significantly,  and are now well into broad-based acceptance and adoption, we  must challenge ourselves to see how Islamic Finance can further  help elevate our people’s socio-economic well-being. Examples  include the following: 
    

(a) Based on Islamic finance’s principle of socio-economic  sustainability, can the industry develop intermediation mechanisms that are need-based, and fit-for-purpose as per  market requirements, as well as products that will truly serve  the nation’s current and pressing socio-economic demands? 

(b) Can we improve the sector’s risk management by  standardising as many aspects of Islamic Finance products  and services as possible, to quell any further lingering  misconceptions about Islamic Finance? 

(c) Can we work towards harmonisation with the rest of the  world’s Islamic Financial markets to uplift the global Islamic  Finance industry?

(d) As the global Halal market’s supply chain integrates vertically,  can we start using blockchain technology more extensively to prevent a recurrence of the halal meat cartel issue that  Malaysia experienced recently?  

26. These efforts are vital for Malaysia and its Islamic Finance sector  players in order to maintain our lead in the world and the Southeast  Asian region, where the total purchasing power of Muslims is  expected to grow close to 300 billion US dollars by 2030. 
    
    
    

CONCLUSION: THE ROAD AHEAD 

Ladies and gentlemen, esteemed guests, 

27. Historically, Malaysia has remained resilient throughout past crises,  thanks to our sound economic fundamentals and well-developed  institutional framework. Today, Malaysia’s economy is also more diversified, supported by our strong external position – built from 23  years of current account surpluses, adequate levels of international  reserves and sizeable external assets held by banks and  corporates. 
    
    
28. Despite Malaysia’s GDP contracting 5.6 per cent in 2020, our  economic resiliency is reflected in IMF’s projections that we will grow  by 7 percent, and in the World Bank’s recent estimate of 5.6 to 6.7  percent. 
    
    
29. With our National COVID-19 Immunisation Plan, more economic  sectors being allowed to operate, improving external demand and recovery in prices of crude oil, I am confident that our economy is firmly set on a recovery and growth trajectory in 2021.  

30. Moving forward, the Ministry of Finance will be focusing on six  priorities in 2021, and I hope the Islamic finance industry will show  its full support on the following focus areas: 

(a) Firstly, jobs creation: We have established the National  Employment Council, chaired by the Prime Minister himself,  to look at creating 500 thousand jobs this year;  

(b) Secondly, to continue ensuring that the rakyat who are still  badly affected will be supported through direct and indirect  aid, like the Bantuan Prihatin Rakyat, welfare and social  assistance for the hardcore poor and targeted loan  repayment assistance. 

(c) Thirdly, on digitalisation, where we will continue with the  national connectivity plan, JENDELA, and the accelerated  rollout of 5G infrastructure development. On 5G, Digital  Nasional Berhad will offer 5G services via a wholesale  model that is regulated to ensure better transparency and  implementation. There will be an open tender process for  the 5G infrastructure development, estimated to cost 15 billion Ringgit, which will be invested by the private sector  developers; 

(d) Fourth is on revisiting the vision, mission, roles and  mandates of GLICs and GLCs, where we will focus on, among others, domestic strategic investments, Bumiputra  vendor development and corporate social responsibility; 

(e) Fifthly, is to empower the SMEs; and 

(f) Sixth, we will accelerate the implementation of specific  projects to drive economic recovery. This includes  supporting small-scale projects, and simplifying  procurement processes. 

31. Aside from the above, we will still continue to strengthen the  country's revenue base and improve our tax framework; build  capacity along the whole supply chain of certain sectors such as  agritech, edutech and AI; and strengthen our entrepreneurial and  start-up culture to help Malaysia progress towards becoming a high income nation. 

31. The Government has also embraced several of the SDGs in our  Budget 2021 as a first step towards inclusive socio-economic  development, and environmental sustainability. This is aimed at  achieving a more sustainable GDP growth through a strategic,  targeted, on-point and outcome-based medium-term economic  plan. These will also be complemented by the SDG-aligned 12th  Malaysia Plan. 
    
    
32. On that note, I thank you for your kind attention and participation in  the 16th Kuala Lumpur Islamic Finance Forum. I would also  like to thank once again, the organisers for ensuring the success of this Islamic Finance fraternity. I wish everyone a productive day  ahead and a successful conference this year.  
    
    

Thank you. Wassalamualaikum warahmatullahi wabarakatuh.

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