Islamic Capital Markets and Products

CHAPTER 2Islamic Capital Markets and Islamic Equities

By Nor Rejina Abdul Rahim

‘The future has many names. For the weak, it's unattainable. For the fearful, it's unknown. For the bold, it's ideal.’

– Victor Hugo

Since the Asian financial crisis of 1997, great inroads have been made into Islamic finance by the non-conformist country Malaysia. While many of its neighbours imposed austerity measures and borrowed from the World Bank, Malaysia imposed capital controls in 1998 which were effective in insulating the Malaysian economy from further deterioration caused by the domino effects seen in the Asian markets during the Asian financial crisis. The ringgit peg of MYR3.80 to the USD imposed in September 1998 was imposed till July 2005.¹ One of the policy implementations made after the crisis was the initiatives shown by the Central Bank of Malaysia's Financial Masterplan and the Securities Commission's Capital Market Masterplan, where Islamic finance was a major proponent for the development of the Malaysian capital market.² The foresight shown by Malaysia has reaped multiple benefits for the country, which is now seen as a global leader of Islamic finance.

Reference to Islamic finance immediately points to Islamic banking as the main thrust of Islamic capital markets (ICMs) and in most markets, banking is where the focus starts and remains. The Central Bank of Malaysia and the Malaysian capital market regulator, the Securities Commission, recognised the fact that banking ...