The Evolutions of Sukuk in Malaysia: Imitation of the Conventional Capital Market or Innovation of Islamic Financial Practices?

The Evolutions of Sukuk in Malaysia: Imitation of the Conventional Capital Market or Innovation of Islamic Financial Practices?

Wednesday, 26 November 2014 - 2:00pm to 4:00pm
Deakin Room, Founder’s Building, St Antony’s College
Lena Rethel (Associate Professor, University of Warwick)
Kerstin Steiner (Senior Lecturer, Monash University)
Dr Matthew Walton
Dr Matthew Walton
Southeast Asia Seminar

At a time when conventional, interest-based financial system continues to suffer from the fallout from the global financial crisis of 2008-9, Islamic finance is a rapidly expanding segment of international financial markets, achieving annual growth rates of 15-20 per cent. It is now widely regarded as a development to watch among policymakers and financial market practitioners.

However, its increasing salience has led to heated debates in both academic and practitioner circles which centre on the distinctiveness of Islamic finance. There are two prominent and opposing views: one argues that Islamic finance largely imitates conventional finance while the other argues that Islamic finance offers a substantive alternative to conventional finance. Indeed, while some scholars have emphasized the similarity between Islamic and conventional financial practices and emerging regulatory structures at a time of increasing financial globalization, other scholars maintain that there exist significant differences between the two.

Yet, many of these accounts fail to speak directly to each other as they look at different aspects of Islamic finance. Moreover, being snapshots of the development of Islamic finance at a given point in time, they fall short of appreciating the inherent revisability of Islamic finance in practice as we will outline in more depth in this paper. More specifically, we suggest that Islamic finance has moved from largely imitating existing financial structures – albeit stripped of elements that are deemed not compliant with the principles of the Shariah – to being a sector that increasingly shows the potential for radical financial product innovation.

This paper sketches the stages of Islamic financial product development from imitation of conventional financial products over improvement to innovation. We do this by focusing on the insights that can be obtained from one case study in particular, the development of sukuk - Islamic bond-like instruments - in Malaysia. Our research draws on the

analysis of policy and regulatory documents and interviews conducted with financial policymakers, market practitioners and Shariah scholars in Malaysia.

Lena Rethel is Associate Professor of International Political Economy in the Department of Politics and International Studies at the University of Warwick. Her work has been published in numerous journals, including the Review of International Political Economy and New Political Economy. Her book The Problem with Banks (co-authored with Timothy J. Sinclair) was published by Zed Books in 2012. Together with Andre Broome and Liam Clegg, she is the editor of Global Governance in Crisis (Routledge, 2015) and with Juanita Elias of The Everyday Political Economy of Southeast Asia.

Doctor Kerstin Steiner is a Senior Lecturer in the Department of Business Law and Taxation at Monash University and an Associate of the Asian Law Centre and the Centre for Indonesian Islam, Law and Society both at the University of Melbourne. Her publications include a two monograph series on Islam, Law and the State in Southeast Asia (co-authored with Professor Tim Lindsey) published by IB Tauris in 2012 and her work has been published in edited volumes by publishing houses such as Oxford University Press and Cambridge University Press.