ISSUES AND CHALLENGES

OF ISLAMIC CAPITAL
MARKET
IN MALAYSIA.
NAME MATRIC NO

NUR AMIRA NABILA BT KAMARUDDIN 1181461

SITI NUR ATHIRAH BT MOHD RAZIS 1181462

 INTRODUCTIO
N

HISTORY AND
DEVELOPMEN DEFINITION
T

ISSUES AND
CONCLUSION
CHALLEGES
 01
INTRODUCTIO
N
• An efficient capital market is important as a catalyst for the
country's economic development. Malaysia is one of the unique
countries because it has two forms of capital markets that are
implemented in parallel. Activities in the Islamic Capital Market (ICM)
in conjunction with the Conventional Capital Market (CCM) provide an
advantage to the country in terms of capital inflows as well as options
for investors to engage in Shariah based economic activities.

• The need for Islamic Capital Market (ICM) in Malaysia is driven

by encouraging developments in the Islamic financial system. The
establishment of Bank Islam Malaysia Berhad (BIMB) in 1983 and
Syarikat Takaful Malaysia in 1984 as well changed in national
monetary policy that encouraged dual banking and financial practices
for conventional institutions stimulated the need for a separate capital
market that complied with Islamic transactions.

• Islamic Capital Market is one of the main agenda of the Securities

Commission (SC) and directly expand Shariah based economic activities.
This is necessary due to the need of the Muslim community towards the use
of Shariah based products for increasing economic activities. The Islamic
Capital Market in Malaysia today exists in tandem with the conventional
capital market using the same market infrastructure.
 02
DEFINITION
• The term of capital market refers to any
financial market where debt and equity are
demanded and supplied. A capital market • Islamic Capital market providing
helps investors find a platform for making activities for fundraising and long
their investments and helps both borrowers -term investments as well as
and investors by channeling funds from increasing the liquidity of the
those with excess funds to those in need of Islamic financial system. The
such funds. Businesses and governments ease with which an asset, or
raise funds in the capital market. security, can be changed into
ready cash without impacting its
• The Islamic Capital Market (ICM) market price is referred to as
refers to a market in which its liquidity. The most liquid asset is
activities are conducted in a cash, while tangible assets are
manner that does not conflict with less liquid.
Islamic law. In other words, the
Islamic Capital Market (ICM)
applies Islamic law in capital
market transactions where the
market is free from the
involvement of activities
prohibited in Islam.
Characteristics of Islamic ethics on the
rights of parties involved in market.

Free from gharar

which means any element of
absolute or excessive uncertainty in
any business or a contract about the
Free from any subject of contract or its price, or
mere speculative risk. Free from
Riba’ speculation and free
which means an excess or to make a fair price
increase.
in business.
 In this verse, Allah SWT has
stated the prohibition for Muslims
to do good deeds with usury. And
Allah SWT says in the Allah SWT also promises
Qur'an: retribution and painful
punishment for those who violate
ِّ ‫وَأ َحل َّ هَّللا ُ ا ْل َب ْي َع َو َح َّر َم‬....﴾
﴿....‫الر َبا‬ َ it. Similarly, the law for
investment in conventional banks
Meaning: "But Allah is illegal because the investment
has permitted trade is not developed according to the
(business) and has concept of Islamic investment
forbidden interest." and also invests in non-Shariah
compliant sectors involving
gambling, riba’ and gharar.
03 HISTORY AND
DEVELOPMENT
• Malaysia's sustainable Islamic Capital Market (ICM) is now undergoing changes
that have been implemented since 1995. Starting with the establishment of the
Islamic Capital Market Unit under the supervision of the Securities Commission
(SC) in those years which played a role in product development and capital
market, this unit was further strengthened with the establishment of the Islamic
Instruments Research Group in the same year. The group comprised of Shariah
experts and corporate figures who are needed to conduct research to reform and
use existing conventionally used instruments and Shariah perspectives.

• The securities screening process was implemented for internal use and
investment by Bank Islam Malaysia Berhad (BIMB) only. Due to these significant
factors and contributions, the Securities Commission (SC) has upgraded the role
of the Islamic Instruments Research Group to a more authoritative body.

• In 1996, the group was branded as the Shariah Advisory Council (SAC) which the
role are responsible for ensuring the implementation of the Islamic Capital Market
in accordance with Islamic provisions.
• The Securities Commission’s (SC) efforts to establish the Shariah Advisory
Council (SAC) have been successful due to the involvement of many experts
who have provided insights and contributed extensive experience in the field of
Islamic finance. As a result, the Islamic Capital Market Masterplan was launched
in 2001.

• According to the development of Islamic Capital Market products today, it can be

concluded that there are six types of products traded, which are Sukuk, Islamic
Unit Trusts, Islamic Real Estate Investment Trusts, Islamic Exchange Trading
Funds, Islamic Structured Products and Shariah compliant Securities.
04 ISSUES AND
CHALLENGES
First issue: The scope of the Islamic capital market is
smaller than Conventional Capital Market.

-The Islamic capital market is a market that is free from the involvement of activities prohibited
by Islam as well as free from dubious elements. However not all companies participating in the
capital market conduct business based on shariah law, there are many companies that have
elements of gambling, sale of non-halal goods, conventional insurance, interest-based financial
services and so on.

- If we look at the Malaysian Stock Exchange, there are about hundreds companies
participating in the capital market, but unfortunately not all of them are Shariah-compliant,
causing the choice of people who want to invest are decrease.
Second issue: Lack of awareness in the community in choosing
Islamic Capital Market over the Conventional Capital Market.

- Many people are prefer to use the services of conventional capital

market systems rather than Islamic capital markets system.

-There are many conventional companies that can make greater

profits than shariah-compliant companies.

- Some people who do not care about the status of shariah non-
compliance they will invest in such companies because the priority
in getting the greater profits.
Third issue: Weaknesses in the drafting of documents related to
Shariah-based Islamic financial management instruments and
transactions.

- Any defect in the legal documentation may result in the contract being void due to invalidity, uncertainty
and non-compliance with Shariah. However, in reality there are still some people who do not emphasize this
matter.

-The risk of Shariah non-compliance can result in significant financial and reputational losses. The public
will lose confidence in Islamic finance products if this element of Shariah compliance is taken lightly and
not be emphasized especially in the drafting of legal documents.

- Securities Commission (2009) emphasizes the importance of well-prepared documentation, stating that
good Islamic capital market goods must be underpinned by unambiguous legal protection.

- To protect the interests of all parties, strong legal documentation is required, as well as appropriate
sanctions that can be enforced in a court of law.
-The key components of the Islamic capital market transactions should be
covered in the documentation, such as the issuing process, manner of
issuance, Shariah principles applied, period of issuance, tenor of the issue,
purpose of the issue, and conditions of the issue.

-The detail provisions on the powers (rights) and duties (liabilities)

of each of the parties should also be clearly documented to
guarantee that each party receives the necessary protection under
the contract.

- Failure to meet the condition prior will be considered a breach of

contract, and the contract may be terminated.
Forth issue: Concerns with the status of the Islamic capital
market position in the future.

-Though the Islamic capital market has made significant progress in creating the Bursa Malaysia (BM-i)
platform, but in all honesty, a question arose as to where the project has led the Islamic capital market.
What is the initiative of investors, particularly institutional investors, to this new platform?

- If we can get sufficient backing from institutional investors, BM-i’s growth can be accelerated. The organic
growth produced by retail investors will subsequently be used to bolster the BM-i programme. As a result,
the BM-i platform would be more useful and meaningful.

- Having a big numbers in Shariah trade volume and value compared to non-Shariah trade would make the
BM-i platform more noticeable. Only by taking this brave step will we be able to demonstrate the true
breadth of our Islamic equity market.
05 CONCLUSION
The international development of the Islamic capital market (ICM) is a good
instance of the market and state's institutional interdependence. Malaysia is the
country with the most developed ICM, as the government has made a point of
promoting the development of various aspects of Islamic finance, including as
banking and capital markets.

The central bank, Bank Negara, and the stock exchange, Bursa Malaysia, each
have a Shariah Committee that provides overarching direction on Shariah
compliance. The International Islamic Liquidity Management Corporation and the
Islamic Financial Services Board have also been welcomed in the country. Several
additional Muslim-majority countries are establishing their banking sectors and,
as a result, an infrastructure to support the ICM.

Given the advantages that Islamic finance, in general, and ICM in particular, can
provide in terms of financial inclusion and the mobilization of funds for economic
development. With regard to some of these issues and challenges that faced by the
Islamic capital market today, will be overcome if the parties involved are able to
improve and enhance the work in management, also provide encouragement and
good cooperation in highlighting and further promoting Shariah compliant
products.
THANK
YOU. 