InvestorEducationandFinancialCapabilityinIslamicFinanceContext:

InvestorEducationandFinancialCapabilityinIslamicFinanceContext:

IFIE-IOSCOGLOBALINVESTOREDUCATIONCONFERENCEISTANBULJUNE2016

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KhairulRidzwanAbdulKuddusInvestorAffairsandComplaints

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SnapshotoftheIslamicCapitalMarket(ICM)

q SizeofMalaysia’sIslamiccapitalmarketisRM1.69trillionq TheIslamiccapitalmarketis60%ofoverallcapitalmarketq Compoundedannualgrowthrateof11.7%between2005and2015

AsatDecember2015

SnapshotofIslamiccapitalmarketstatisticsinMalaysia

1,086.18

608.60Marketcap(RM’bil.)

Shariah-compliant

Conventional607.93

516.91

Bondsoutstanding(RM’bil.)

Sukuk

Conventional

132.38

535.5

AUM(RM’bil.)

Islamic

Conventional

193

419

No.ofUTfunds

IslamicConventional

ComprehensiverangeofICMproductsandservices

Islamicunittrusts

IslamicExchangeTradedFund

IslamicRealEstateInvestment

Trusts

SukukIslamic

structuredproducts

Shariahcompliantsecurities

Islamicstapledsecurities

Islamicfundmanagement

IslamicStockbroking

CommodityTradingPlatform

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RegulationofICMispartoftheoverallcapitalmarketregulations

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ICM business and transactions accord same level of investorprotection as in conventional market, e.g. process of regulation,supervision and enforcement;

Common regulatory approach to regulating ICM products – sameliability on the part of the intermediaries, e.g. due diligence andrepresentation; and

Disclosure, transparency and governance apply equally to bothconventional and Islamic products, hence same legal andregulatory protection.

Atwo-tierregulatorframework

• Bonds/Sukuk – trustdeed,mandatoryrating,eligibleperson

• Unittrust/Islamicunittrust–managementcompany,trustee,investmentcommittee

• REITs/IslamicREITs – atleast50%investmentinrealestate

GeneralRegulatory

Requirements

• Sukuk – ApprovedShariah principles,Shariah adviser,utilisationofproceeds

• Islamicunittrust– Shariah adviser,investments,annualcertificationbytheShariah adviser

• IslamicREITs– tenants’activitiesandrentalincomemustcomplywithShariah requirements

Shariah – specificrequirements

Tier1

Tier2

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Applicabletoboth

conventionalandIslamicproducts

ApplicabletoIslamicproducts

RobustShariah governanceframeworkisfundamentalforICM

• SACrecognisedasthecentralauthorityfortheascertainmentof Shariah principles forIslamicfinance

• Comprisesprominent Shariah scholars,juristsandmarketpractitioners

• Actsasareferencepointforindustry• PublicationofResolutionsoftheSAC

NationalShariahAdvisoryCouncil

attheSC

• Mandatedbyregulation• Toadvise,reviewandendorsecomplianceof

products/serviceswithShariah principles• ForIslamiccapitalmarket,mustberegistered

withSCbasedoncompliancewiththeRegistrationofShariah AdvisersGuidelines

• ForIslamicbanking, mustadheretotheShariah Governanceframeworkissuedbythecentralbank(BankNegaraMalaysia)

Shariah Advisers/CommitteeattheIndustryLevel

Tier1

Tier2

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Progressionoftheguidelinesfortheissuanceofsukuk

GuidelinesontheOfferingofPDS(2000)• GovernissuanceofbothconventionalandIslamicPDS

• Provisionson IslamicPDSembeddedinthesameguidelines

GuidelinesontheOfferingofIslamicSecurities(2004)• FacilitatetheintroductionofawiderrangeofIslamicinstruments,particularly

thoseissuedundertheShariahprinciplesofMudharabah orMusharakah• Guidelinesarereleasedpursuanttotheprescriptionby theMinisterofFinance

thatsecuritiesusingMusharakah orMudharabah principles,aswellasSukukissuances,areclassifiedas“securities”throughtheSecuritiesCommission(PrescriptionofIslamicSecurities)Order2004(PrescriptionOrder).

• ComplementstrategicinitiativesintheCapitalMarketMasterplan (CMP)tofacilitatethedevelopmentofacompetitiveandinnovativeIslamiccapitalmarket,attractivetoboth localandtheglobalmarkets.

GuidelinesonSukuk (2012)• SpecificprovisiononShariah rulings

applicabletoalltypesofSukuk;• SpecificprovisiononShariah rulings

applicabletospecifictypesofSukuk;• Requirementfortheappointmentof

Shariah advisers;and• submissionofdocumentsand

information.• Providinggreaterclaritytoensure

complianceofShariah rulingsandprinciplesendorsedby theSACoftheSC;

GuidelinesonSukuk (2014)• IntroductionofSustainableand

Responsible Investment(SRI)Sukukframework tofacilitatefinancingofsustainableandresponsibleinvestmentinitiatives.

• TheadditionalareasfortheissuanceofSRIsukuk includeutilisationofproceeds,eligibleSRIprojects,disclosurerequirement,appointmentofindependentpartyandreportingrequirement.

GuidelinesonUnlistedCapitalMarketProducts for theLodgeandLaunchFramework(2015)• Intended toshortentime-to-marketbyenablingwholesaleproducts tobelaunched

once therequiredinformationislodgedwiththeSCviaitsonlinesubmissionsystem,ascomparedtothecurrent14-21daysapprovaltimeframe.

• Wholesaleproducts thatarecoveredunder theframeworkincludewholesalefunds,structuredproducts,bonds, sukuk andasset-backedsecurities.

• InlinewithSC’snewregulatoryphilosophywhichadvocatesproportionalityofregulationandrecognises thematurityoftheMalaysiancapitalmarketandthesophisticationofinvestorswithinthewholesalemarket.

• TheGuidelinesfortheLodgeandLaunchframeworksupersedestheexistingguidelineson thevariouswholesaleproducts.

GuidelinesonIssuanceofPrivateDebtSecuritiesandSukuk toRetailInvestors(2015)• Tofacilitateretailparticipationinthebondandsukuk market.• Enablesretailbondsandsukuk tobeissuedandtradedeitherontheexchange(Bursa

Malaysia)orover thecounter(OTC)viaappointedbanks.

InvestorEducationiscarriedoutthroughInvestSmart

Timelyandfitforpurposeprogrammes,acrossalllevelsofsophistication, viamultipleplatforms/delivery channels

Must resonate withtarget groups so thatknowledge and skills areappreciated & embedded

COMPREHEN-SIVENESS

MULTIPLE MODALITIES

SIMPLICITY

Extensive & diverse target groups

Bursa,FIMM,PPA,SIDREC,OtherAgenciesandSIDC Industry

B.Media–Print,Broadcast,Digital

andSocial

A.Exhibitions&Roadshows

C.TargetedProgrammes

D.Strategicpartnerships

Through

3Principles inimplementing ourinitiatives

Mass Reach Programmes

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SCMalaysia’sapproachtoInvestorEducation

InvestorEducationinitiatives

Conventional

Islamic

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• SC’sIslamicinvestoreducationinitiativesaredoneaspartofouroverallinvestoreducationinitiatives

• InlinewithrecommendationsofIOSCO’sICMTaskForcein2004*

*“Theconventional securitiesregulationframeworkandprinciplesequallyapplytotheICM,withtheadditionofsomeformofaShariah approvalorcertificationprocess- noneedtoformulateseparateregulatoryprinciples forthefortheIslamiccapitalmarket.Byextension,IOSCO’sobjectivesandprinciplesofsecuritiesregulationcanbeappliedtotheIslamiccapitalmarket”

InvestorEducationapproachtoICMproducts

ShariahInvestmentProduct

BasicShariahcompliance

Musliminvestorsseeking

permissibleinvestments

Allinvestorsseeking“ethical”-typeinvestments

UnderstandingofShariah concepts

Shariahprofessionals,

scholars

Risk/returnprofile

Allinvestors

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HowICMfitsintooverallIEinitiatives

• ParticipatinginHalalexhibitions• MalaysiaInternationalHalalShowcase(MIHAS)• HalalMalaysia

• Outreachprogrammes androadshows

Exhibitionsandoutreachprogrammes

• ICMisincorporatedintofinancialcapabilityprogrammes.Examples:• BeMoneyWise(BMW)seminars• Retailinvestorseminarsonunittrustsandthestockmarket

Seimnars forgeneralpublic

• MakinglistofShariah-compliantsecuritiespubliclyavailable• Islamicunittrustfunds, IslamicETFs,etc

Websitesandpublications

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IEforICMproducts:ObservationsandLessonsLearnt

• ListofShariah-compliantstocks• TypesofShariah-compliantcollectiveinvestmentschemes

“Education”onShariah-compliantproducts throughinformation

• Scammerstakeadvantageof“Shariah compliant”label• ProductmustnotonlybeShariah-compliantbutlegallycompliant

“Halal”ismorethantechnicalcompliance

• 60.4%ofMalaysianpopulationareMuslim• MuslimsacceptcertificationbynationalShariah body,SAC• Non-muslims persuadedbycommercialconsiderations (iflowercost,higher returns)orethicalelement

• RegulatorsensurelevelofprotectionforconventionalandIslamicisthesame

Levelofacceptancebyinvestors

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IEforICMproducts:ObservationsandLessonsLearnt(cont’d)

• TenetsofsmartinvestingmustbeinculcatedwhetherconventionalorIslamic

• Regulatorsensureparityofsafeguards

Riskandreturnarekeyconsiderations

• National-levelSACinstrumentalinensuringgeneralacceptanceofShariah-compliantproducts

• Regulardissemination oflistofShariah-compliantproducts• Highlevelof trustinSACpronouncements: Importantfactorinencouraging financialparticipationinthe(largelyMuslim) ruralheartland

Shariah certification

• Transparencytoensureacceptance• Ofinterestmainlytoscholarsandprofessionals

Shariah conceptsandmethodologies

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ThankYou

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