The Future Islamic Finance & Wealth Management in the Age of New Media

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1 The Future Islamic Finance & Wealth Management in the Age of New Media By Adj. Professor Dr Zaharuddin Abd Rahman Managing Director Elzar Shariah Solution & Advisory Sdn Bhd

2 Speaker s profile Adj Prof. Dr. Zaharuddin Abdul Rahman graduated with a Bachelor Of Arts (Hons) in Usuluddin from University of Malaya, obtained a Master degree in Islamic law (hons) from Al-Yarmouk University, Jordan and subsequently obtained his PhD in Shariah and Islamic Finance from University Of Wales, Lampeter, United Kingdom. Founding Managing Director Of Elzar Shariah Solutions And Advisory Sdn Bhd & Elzar Group of Companies Member, Board of Directors of University Sultan Zainal Abidin (UnisZa), YAPIEM, BYT Technologies Pte Ltd, Bayanat Fintech, MyDental Care Shah Alam. Chairman Of Shariah Committee Exim Bank Berhad, Onexox Sdn Bhd, Perbadanan Usahawan Nasional Berhad (PUNB) and etc Shariah Advisor Of Sedania Salam As-sidq, Acr Retakaful Bahrain And Malaysia, Islamic Employees Provident Fund Malaysia (EPF), BIMB Securities Sdn Bhd and etc Adjunct Professor at Faculty of Business and Accountancy of University Selangor (UNISEL) A Member Of Economics Cluster With Malaysian Islamic Consultative Council Chairman Of Board Of Directors And Halal Advisor To Elzar Resources Sdn Bhd. A Member Of Perlis Fatwa Council. Registered Shariah Adviser At Securities Commission Of Malaysia Appointed as Shariah Scholar by Bursa Malaysia President Of Multaqa Asatizah And Duat (MURSHID) 2

3 Our Company Elzar Shariah Solutions Sdn Bhd Syariah Compliance Audit & Review. The scrutiny of the relevant operations and activities of a company resulting in the publication of an independent opinion on whether or not the products, activities and operation are in conformity with the Shariah law. Consultancy on Islamic Products and Business Advisory. Setting manuals, guidelines, providing assistance and undertaking services to meet clients needs to be in line with the requirement of Shariah. Provision of Training courses on Islamic Banking, Islamic Capital Market; Islamic Stockbroking, Investments, Takaful and many more. Product design and provision of consultancy services in other areas of Islamic Financing, Islamic Banking, Islamic Capital Markets, Islamic Investments & Takaful. Provide Islamic contents for higher educational program, public and telco content provider. Play the role of Shariah Advisor for corporate companies, investment & fund managers and government agencies. Providing research & development. Supporting commerce and industry in high quality research and business development in line with the requirement of Syariah. 3

4 Malaysia Islamic Banking -Development Pilgrims Management Fund and Board of Malaysia First Islamic bank established (Bank Islam Malaysia Berhad) 1984 First full-fledge takaful company established (Syarikat Takaful Malaysia Bhd ) 1. Islamic Banking Act Government Investment Act Introduction of Interest-free banking Scheme or Skim Perbankan Tanpa Faedah (SPTF) - Islamic window Islamic Interbank Money Market New Financial Disclosure (GP8) 1. Income recognition for SPTF from cash basis to accrual basis 2. SPTF allowed to set up full-fledged Islamic Banking branch 3. Establishment of Syariah Advisory Council (SAC) 4

5 Malaysia Islamic Banking -Development Bank Muamalat Malaysia Berhad started operation as second Islamic bank 2004 Three licenses issued to foreign Islamic bank: 1. Kuwait Finance House 2. Al-Rajhi Banking & Investment Corporation 3. A consortium of Islamic financial institutions (Qatar Islamic Bank, RUSD Investment Bank Inc. and Global Investment House) 2006 International Centre for Education in Islamic Finance (INCEIF) Malaysia International Islamic Financial Centre (MIFC) Issuance International Islamic Banking licenses (IIB) 2010 Onwards NKEA - National Key Economic Areas NKEA#5 Financial Services, EPP 10: Becoming the Indisputable Global Hub for Islamic Finance 2011 Onwards Financial Sector Blueprint

6 Share Of Finance To Malaysia GDP Share of Finance and Insurance to GDP at Constant prices 2010 YEAR FINANCE INSURANCE TOTAL FINANCE & INSURANCE

7 Islamic Banking Statistics Number of Institutions Commercial Bank Merchant/Inve stment Bank Islamic Bank Office Network 2,244 2,139 2,245 2,271 2,298 2,312 2,435 2,481 2,479 2,494 2,500 2,498 Commercial Bank Merchant/Inve stment Bank 2,072 1,952 1,968 1,979 1,999 2,006 2,050 2,056 2,029 2,045 2,048 2, Islamic Bank ,167 1,272 2,039 2,087 2,102 2,147 2,171 2,177 2,192 2,206 2,197 1 Includes Islamic bank branches that are shared with conventional bank branches p Preliminary source : Bank Negara Malaysia 7

8 Islamic Banking Statistics 140,000 Number of Employees 120, ,000 4,434 2,625 5,151 3,522 5,774 7,721 6,702 7,829 8,561 8,129 8,511 8,972 9,214 9,751 10,251 9,402 9,577 9,610 8,814 9,122 8,922 9,060 8,606 7,959 80,000 60,000 40,000 89,047 91,741 96,146 99,593 98, , , , , , , ,089 20, p Commercial Bank Merchant/Investment Bank Islamic Bank source: Bank Negara Malaysia 8

RM Billion Percentage (%) Islamic Banking Statistics Asset 1,000 900 800 700 600 500 400 300 11.3 14.4 15.5 17.4 19.6 20.7 22.4 23.8 25.0 25.5 26.8 28.0 30.0 25.0 20.0 15.0 10.

9 RM Billion Percentage (%) Islamic Banking Statistics Asset 1, p Total Asset 1 % of total assets in entire banking system Including development financial institutions under the Development Financial Institutions Act 2002 p Preliminary source: Bank Negara Malaysia 9

10 RM Billion Percentage (%) Islamic Banking Statistics - Financing Financing refers to assets / financing funded by investment accounts p Total Financing 1 % of total financing in entire banking system Including development financial institutions under the Development Financial Institutions Act 2002 p Preliminary source: Bank Negara Malaysia 10

11 RM Billion Percentage (%) Islamic Banking Statistics - Deposits p Total Deposits 1 % of total deposits in entire banking system Including development financial institutions under the Development Financial Institutions Act 2002 p Preliminary source: Bank Negara Malaysia 11

12 Islamic Banking Statistics Pre-tax Profit For the Calendar year p RM million Banking System 1 12,949 17,702 19,170 16,991 22,959 26,196 29,219 29,758 31,929 28,996 32,221 Commercial Bank 1 12,083 15,655 18,489 15,759 22,207 25,095 28,199 28,766 30,756 28,263 31,451 Investment bank 866 2, , ,101 1, , Islamic Bank 1,612 1,894 1,811 2,641 3,199 3,027 4,852 4,913 5,112 5,034 5,576 Total Capital Ratio As at end p Banking System Islamic bank Ratio Total capital ratio refers to the ratio of a bank's capital to its risk 1 Includes Islamic Banks p Preliminary source : Bank Negara Malaysia 12

13 List of Banking Institutions with Islamic Business as at August 2017 Commercial Banks Islamic Banks Investment Banks 13

14 RM Million Percentage Islamic Banking Statistics - Takaful and Conventional Insurance 300, % 30.0% 250, % 200, % 17.4% 19.9% 17.7% 18.3% 15.1% 20.0% 150, % 15.0% 100, % 12.1% 12.9% 13.5% 11.8% 9.9% 8.7% 8.6% 8.7% 10.0% 9.6% 50, % 7.3% 7.0% 6.7% 5.4% 4.3% 5.0% p Takaful Fund Assets Conventional Insurance Fund Assets Takaful Fund Assets Growth Conventional Insurance Fund Assets Growth 0.0% source : Bank Negara Malaysia 14

15 15

Islamic Banking Statistics - Takaful No. of Registered Takaful Operator As at end 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 5 8 8 8 8 9 11 12 12 11 11 11 No.

16 Islamic Banking Statistics - Takaful No. of Registered Takaful Operator As at end No. of Agents 14,059 15,194 43,843 60,197 88,895 74, , ,552 77,804 64,106 65,387 64,200 Family 11,781 11,188 32,987 44,222 55,898 42,698 66,338 68,009 58,984 50,529 50,334 49,836 General 2,278 4,006 10,856 15,975 32,997 31,391 33,970 37,543 18,820 13,577 15,053 14,364 No. of Office No. of Employees 2,670 2,967 2,846 2,411 2,499 2,713 2,846 2,758 3,162 2,720 2,896 3,766 Takaful source : Bank Negara Malaysia 16

17 RM Billion Islamic Banking Statistics - Debt Securities Issuance in Malaysia % % % 54.9% % 28.5% 33.3% 32.4% 30.3% 35.0% % 46.4% Bond Sukuk Notes: Refers to those of all tenors, i.e. both short-term and long-term securities listed on FAST, BNM. Reflects nominal value as at time of issue. source : Bank Negara Malaysia 17

18 Global Sukuk source: Thomson Reuters, MIFC

19 Global Wealth (US$ trillion) Source: BCG Average Annual Changes (%) 19

20 Global AUM (US$ trillion from ) 20

21 Number of millionaires in 2015 and

22 Global Islamic Funds AUM Trend (US$ billion) 22

23 Leakages in Islamic Wealth Management It is estimated about US$9.5 trillion of global Muslim wealth is intermediated by conventional financial institutions. This is an estimated potential annual revenue of about US$180 billion if these funds are managed by Islamic fund and wealth managers 23

24 Nurturing Islamic Wealth Management Strategic Plan & Real Innovation Strong commitment, good governance and leadership Stakeholder participation New Technologies Application, Analysis & R & D Transparency 24

25 25

Compliant Shariah- RM1,031 Compliantbil RM1,031 bil (62%) Total Capital Market RM2,840 bil Bonds RM513

27 Equity Total: RM1,667 bil Islamic Capital Market is a key component of the Malaysia s capital market Bonds Total: RM1,173 bil Shariah Non- Compliant Shariah Non- RM615 Compliant bil RM636 bil Shariah- Compliant Shariah- RM1,031 Compliantbil RM1,031 bil (62%) Total Capital Market RM2,840 bil Bonds RM513 Bonds bil RM512 bil Sukuk RM661 Sukuk bil RM661 bil (56%) ICM RM1,692 bil (60%) * As at 31 December

28 RM billion Malaysia s ICM has grown to RM1.7 trillion 1,600 1, , % Year Size of the ICM (LHS) ICM as a percentage of the total capital market (RHS) CAGR = Compounded Annual Growth Rate Islamic Equity RM548 billion CAGR 6.5% RM1,030 billion Sukuk RM146 billion 2006 CAGR 16.3% 2016 RM661 billion 28

29 Malaysia continues to lead the global sukuk market Malaysia s secondary sukuk market stood at USD183.8 billion, representing a share of 52.6% of total sukuk outstanding 29

Fund management industry is an important

Total: RM358 bil Wholesale Fund Total: RM91 bil

bil Islamic RM36 bil Conventional RM55 bil

RM150 bil (21%) REIT Total: RM44 bil ETF Total:

5 bil Conventional RM1 bil VC / PE Total

30 Fund management industry is an important segment of Malaysia s capital market Unit Trust Total: RM358 bil Wholesale Fund Total: RM91 bil Islamic RM61 bil Total Fund Management RM696 bil Islamic RM36 bil Conventional RM55 bil Conventional RM297 bil Islamic Fund Management RM150 bil (21%) REIT Total: RM44 bil ETF Total: RM1.9 bil Conventional RM1.5 bil lslamic RM0.4 bil * As at 31 December 2016 Private Retirement Fund Total: RM1.5 bil lslamic RM0.5 bil Conventional RM1 bil VC / PE Total committed funds under management = RM6.5 bil Conventional RM25 bil Islamic RM19 bil 30

Domestic Islamic funds industry outpaces

Full-fledged IFMCs Islamic AUM 2016: RM150

of Islamic funds 2016: 328 Islamic funds

1 bil CAGR 2009 2016: 23% *(CAGR 2009 2015

31 Domestic Islamic funds industry outpaces global growth 10 foreign 8 local 2 JVs 20 Full-fledged IFMCs Islamic AUM 2016: RM150 bil 31 FMCs offering Islamic windows CAGR : 21.8% Note: Islamic AUM = Islamic collective investment schemes (CIS) and Islamic private mandates No. of Islamic funds 2016: 328 Islamic funds AUM 2016: RM116.1 bil CAGR : 23% *(CAGR : 24%) Outperformed global Islamic funds AUM CAGR of 4.0% ( )* Note: Islamic funds refer to Islamic CIS which include unit trust funds, wholesale funds, private retirement schemes, exchange traded funds and real estate investment trusts Sources: Securities Commission Malaysia, Islamic Financial Services Board 31

32 32 Accounts for significant share of the global Islamic funds market Second largest AUM by domicile at 28% in 2015 Luxembourg 4% Others 13% United States 7% Jersey 8% Saudi Arabia 40% Malaysia 28% Number of Islamic funds grew at 14% CAGR from 285 in 2004 to 1,220 in 2015 Source: Islamic Financial Services Board Stability Report 2016

33 and growth in sustainable investment Globally, there are now $22.89 trillion of assets being professionally managed under responsible investment strategies, an increase of 25% since Source: Global Sustainable Investment Alliance 2016 SRI market in Asia China 14% Others 16% Malaysia 30% South Korea 14% Hong Kong 26% Source: Global Sustainable Investment Review

34 Value-based Intermediation (VBI) as the next growth driver of Islamic finance in generating positive and sustainable impact What is VBI? - an intermediation function that aims to deliver the intended outcomes of Shariah - through practices, conduct and offerings that generate positive and sustainable impact to the economy, community and environment, - without compromising shareholders long-term interests & - focus on quality growth How do value-based practices look like? Impact-based Assessment Impact-based assessment provides equal attention to application s potential impact to the society, environment & economy Performance Measurement Comprehensive performance measurement (both financial & non-financial aspects) Impact-Focused Disclosure Impact-focused disclosure covers details of clients that they finance to & invest in (e.g. purpose, location & impact) Inclusive Governance Active engagement & constructive collaboration with multi-stakeholders in decision making process * Source: BNM strategy paper on value-based intermediation, Issued on: 20 July 2017

35 Industries Disrupted by New Technologies Financial Services POST OFFICE PUBLIC TRANSPORT HUMAN TRAVEL AGENT FINANCIAL SERVICES Courtesy: Veda Praxis HOTEL & MOTEL NEWSPAPERS & MAGAZINE BRICK-N-MORTAR SELLERS TV & MUSIC DISTRIBUTION 4-May-18 35

What Disruptive Technology Would Mean to Wealth Management & Finance? Those that significantly alter the way businesses or entire industries operate.

36 What Disruptive Technology Would Mean to Wealth Management & Finance? Those that significantly alter the way businesses or entire industries operate. Often times, these technologies force companies to alter the way they approach their business, or risk losing market share or becoming irrelevant. ImprovesBudgeting Accuracy ImprovesPlanning/ Forecasting SecuredProcess Immediate Evaluate Risks Savetime Reduce Cost Increase Productivity OvercomeHumanLimits BetterAccuracy AutomatedData Entry Data Categorization OrganizedAdministration CloudBasedSystem UninterruptedAuditing GainAccesstoReal-Time TransactionalData Immediate Respondto Issues

37 Value of Fintech Source: Value of FinTech (KPMG), October 2017

38 Daxueconsulting.com 5

39 Cloud, Blockchain, Analytics, Augmented Reality, Artificial Intelligence [Ai], Interoperability, Interoperability is a characteristic of a product or system, whose interfaces are completely understood, to work with other products or systems, at present or in the future, in either implementation or access, without any restrictions. Augmented Reality (AR) is an interactive experience of a real-world environment whereby the objects that reside in the real-world are "augmented" by computer-generated perceptual information, sometimes across multiple sensory modalities, including visual, auditory, haptic, somatosensory, and olfactory 5

40 Blockchai n Give the ledger to everybody: 1. Peer-to-pee r transaction 2. Distribute d store d database/information 3. Ensure all re cords sync-up 4. Concensus, rules and code were defined from the outset and open-source 5. And DISRUPTvarious industries... Trust

41 TransformationinFinancial Services

Fintech Classification Business Process Payment, Clearing, Settlement (payment, remittance, electronic wallet, P2P Payment gateway) Deposit, lending & capital raising (crowdfunding, P2P Lending,

42 Fintech Classification Business Process Payment, Clearing, Settlement (payment, remittance, electronic wallet, P2P Payment gateway) Deposit, lending & capital raising (crowdfunding, P2P Lending, credit facitilities) Market provisioning (e-aggregator, productcomparison, market analysis) Investment and Risk Management (insurance, fund management, planning, e-trading) Infrstructure and Cross Process (security, blockchain-based) Coordinating B2C, C2C B2C,C2C B2B, B2C B2C B2B, B2G

43 Q & A Many Thanks Dr. Zaharuddin Abd Rahman zaharuddin@yahoo.com

Workshop on Islamic Finance in the National Accounts Beirut, Lebanon October 2017 Department of Statistics Malaysia

Workshop on Islamic Finance in the National Accounts Beirut, Lebanon 24 26 October 2017 Department of Statistics Malaysia 1 Outline Introduction Development of Islamic Finance in Malaysia Islamic Banking