Malaysia's Islamic capital market covers sukuk, listed shares classified as compliant, funds and Islamic liquidity instruments, regulated by the Securities Commission Malaysia and its Shariah Advisory Council, alongside the banking sector supervised by Bank Negara Malaysia.
A market as large as Islamic banking
In Malaysia, sukuk account for a major share of the national bond market and the country remains the world's largest sukuk issuer. State companies, toll roads, power plants and developers raise ringgit funding there without taking a bank loan.
From Shell MDS in 1990 to today's ringgit sukuk
Malaysia's first corporate sukuk is usually credited to Shell MDS, issued in 1990 on the bai bithaman ajil principle. Structures have since moved towards Ijara, Musharaka, Wakala and Murabaha, which Gulf investors accept more readily.
Islamic government securities issued by the central bank
The government issues Government Investment Issues, Islamic securities auctioned by Bank Negara Malaysia alongside conventional bonds. They provide a ringgit benchmark curve and serve as collateral for Islamic banks in their liquidity operations.
How banks place funds in the Islamic money market
Islamic banks manage surplus cash on a dedicated interbank market, through Mudaraba placements, deposits based on commodity Murabaha and Sharia-compliant repos, rather than on the interest-based money market used by conventional banks, which keeps their liquidity management within Sharia limits.
Role of the Securities Commission and its Sharia council
The Securities Commission Malaysia approves sukuk issues and Islamic funds. Its Shariah Advisory Council, set up in 1996, issues rulings on capital market structures and publishes the list of listed securities regarded as compliant.
Twice-yearly list of compliant stocks
Twice a year, in May and November, the Securities Commission updates the list of Bursa Malaysia companies classified as compliant. A large majority of listed stocks appear on it, letting Islamic managers cover almost the whole market.
Activity thresholds of 5% and 20%
Qualitative screening first examines revenue: below 5% for clearly prohibited activities such as conventional banking, alcohol or gambling, and below 20% for mixed activities such as hotels, stockbroking or non-compliant property rental income.
Financial ratios below 33%
Since the 2013 revision, cash placed in conventional products and interest-bearing debt must each stay below 33% of total assets. A company exceeding these thresholds drops off the list at the next review.
Bursa Suq Al-Sila, a commodity platform
Launched in 2009 by Bursa Malaysia, this platform lets participants buy and resell palm oil and other commodities to execute Murabaha and tawarruq deals. Malaysian and foreign banks use it when they need an identifiable real asset.
What do Islamic fund managers offer?
Management companies holding an Islamic licence offer equity funds, sukuk funds, money market funds and private retirement products. Malaysian savers reach them through agents and platforms, and the national retirement savings body also offers a Sharia option.
Green sukuk and the SRI framework
The Securities Commission published a framework for socially responsible investment sukuk in 2014. In 2017 Tadau Energy issued a green sukuk for solar plants, often presented as the world's first green sukuk.
Watch points for a foreign investor
A ringgit sukuk carries currency risk and often thin secondary liquidity. Check the structure used, the local rating, the governing law and the Sharia opinions, since some Gulf investors reject structures accepted in Malaysia.
Specialist external source
The Bank Negara Malaysia website covers Islamic government securities, the Islamic interbank money market and statistics on Islamic financing and sukuk issued.