The Business Year

Datuk Johari Abdul Ghani

MALAYSIA - Finance

Ahead of the Game

Minister of Finance II, Malaysia


Datuk Johari Abdul Ghani started his career as an auditor at international accounting firm Peat Marwick (now known as KPMG). He went on to hold a number of key positions in several companies listed on the KLSE, particularly in the fast food industry, manufacturing, and agriculture sectors. Prior to his appointment as Deputy Minister of Finance in June 2016, he served as the Group Managing Director of C.I. Holdings and Chairman of UDA Holdings. He has been active in politics for more than 28 years and was also appointed as a UMNE Supreme Council Member. He holds a degree in accounting from Institut Teknologi MARA, and went on to continue studies in the UK where he qualified for membership and was awarded a fellowship of the Chartered Association of Certified Accountants.

"There is also greater acceptance of takaful with an increased penetration rate at 14.8% of the population."

Malaysia holds more than a quarter of the world’s Islamic assets. What is your vision for moving the industry forward and making Malaysia the global driving force?

Malaysia’s decades of experience in Islamic finance has put it in a leading position globally. Islamic finance has become a key segment in the domestic financial system, and Islamic banking assets now stand at about 27% of total banking assets, surpassing the 20% target originally set out in Bank Negara’s Financial Sector Masterplan. There is also greater acceptance of takaful with an increased penetration rate at 14.8% of the population. Backed by a robust sharia screening methodology, more than 70% of total listed securities in the country are sharia-compliant, providing a wide array of choice for investors. Malaysia, with its consistent global sukuk market share of more than 50% over the past 10 years, has sustained its position as market leader. Progress is also evident in our attempts to become a center for Islamic fund and wealth management. We have emerged as hub for this activity, with a 35% market share and the largest number of Islamic funds out of any country. While achievements in various market segments have placed us at the forefront, more groundbreaking initiatives are needed to seize opportunities in new growth areas and to re-energize the industry. An honest assessment of the existing business models and product offerings must be undertaken to recognize problems, which is a crucial step towards realizing the true value propositions of Islamic finance. Greater innovations such as Bursa Malaysia-I and Investment Account Platform (IAP) are some of the initiatives that could chart a new phase of growth for the industry and keep Malaysia at the forefront of the development curve. The Malaysian brand of Islamic finance must also transcend beyond borders and belief as the industry has become part of growth strategies of global financial players, indicating greater appreciation of its value proposition. This is evident in the increasing presence of global banking players from diverse regions including Japan, Europe, and the Middle East operating in Malaysia. In addition, embarking on digital innovation and making use of well-rounded talent could provide an additional competitive edge to the industry, particularly in scaling up businesses beyond traditional limitations and enhancing operational efficiency, all of which would be key to making Islamic finance more mainstream in the global banking system.

Recently, Bursa Malaysia launched the Bursa-I platform, creating a sharia-compliant marketplace. What are your thoughts here?

It is worth noting that sharia-based equity investing has become a significant contributor to the growth of the domestic equity market in the past decade. Sharia-compliant securities in Bursa Malaysia now amounted to MYR1.1 trillion and account for about 64% of total market capitalization. Continued efforts and initiatives by the Securities Commission Malaysia as well as its Sharia Advisory Council have not only played an invaluable role in enhancing the depth and breadth of the Islamic capital markets but also facilitated the development of innovative products that we have today, such as Islamic REITs, Islamic ETFs, and retail sukuk. As such, it is encouraging to see Bursa Malaysia taking this leading role in strengthening the ecosystem by championing exchange-based sharia-compliant investing and providing new options for those who wish to invest based on the principles of Islamic finance. Indeed, principled investing practices based on sharia are an important part of living life responsibly, through responsible investing. It is envisaged that this new platform will position Bursa Malaysia as the leading exchange in the Islamic capital market for sharia investments, and will be globally recognized as the marketplace for sharia-compliant trading activities among domestic, regional, and global issuers and investors. Such dedicated platforms will also help to promote and increase the visibility of Islamic Participation Organizations that offer Islamic stockbroking services to both retail and institutional investors and ensure the holistic growth of the Islamic capital market industry across the value chain.

What role do you envision for Malaysia in driving Islamic finance across ASEAN?

The further intensification of financial linkagess within the ASEAN region will indeed position Malaysia to reap the benefits of the economic community. ASEAN is home to a rapidly growing capital market, in which total market capitalization amounted to about USD2.3 trillion or 90% of GDP in 2015. With ASEAN households having one of the highest savings rates at about 30%, there is tremendous opportunity to bring sharia-based financial services to the 600 million people living within the ASEAN region. Malaysia is now positioned at the forefront of international developments, with increasing connectivity between financial centreers and more cross-border Islamic financial transactions. These links open up greater opportunities to introduce and strategically position Islamic finance services globally, while providing opportunities for the meaningful participation of our local players as lead arrangers for some of the global sukuk issuance. The gains are also extended to our ancillary service providers which have been able to establish greater connections in the international market. In addition, our expertise, innovations, and deals originating in Malaysia and into ASEAN will help to shape the regional financial landscape to be fairer, more just, and more transparent. Multi-currency expertise, financing expertise for industries like infrastructure and energy that are well suited to Islamic financing, and wealth management expertise will need to form our next wave of services emanating from Malaysia.

FinTech is often mentioned as a game changer for the financial industry. How should Malaysia embrace this going forward?

The rising significance of FinTech has revolutionized and supported the growth of the financial system beyond traditional channels such as banks and capital market intermediaries. These include the way people participate in alternative finance, such as crowdfunding platforms and digital currencies like Bitcoin, to mention just a few. Following the leads of other financial regulators in Australia, China, Singapore, the UK and the US in embracing disruptive innovation in the financial industry, Bank Negara Malaysia has recently issued details for the FinTech regulatory sandbox framework to pave the way for innovation in the banking system. However, it is important to note that our Sandbox is unlike any other since it is the first to include Islamic finance. Indeed, the integration of digitization strategies in the business model of our domestic players is already taking place with the launch of the Investment Account Platform as the first banking-intermediated internet-based platform in Islamic finance. Moreover, we also made inroads in allowing digital-based alternative finance to be more accessible to the wider population. The government through the Securities Commission were the first in the ASEAN region to legalize the Equity Crowdfunding platform in 2014 and we have also introduced the regulatory framework for Peer to Peer (P2P) Financing more recently. This is the first step towards channeling the power of digital markets to open new doors and create democratizing opportunities for small businesses and retail investors, giving them access to products and services previously deemed too costly to be offered to the masses. Given the regulatory support and continuous enhancement of the digital eco-system environment that the country is embarking upon, the finance industry must rise to the challenge by expanding their frontiers in terms of innovation. This could be through the greater intensification of technology within their business models or even through greater collaboration with FinTech startups. Rather than looking at the FinTech revolution as an unwelcoming and disruptive force, the industry ought to embrace it as an opportunity to significantly enhance values and experience for consumers for the betterment of the economy and society at large.



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