KUALA LUMPUR, Nov 3 — Prime Minister Datuk Seri Najib Razak credited today the 2008 global economic crisis, reportedly the worst since the Great Depression, for paving the way towards the growth of Islamic finance.
He said the 2008 financial crisis, which was triggered by the bursting of a housing bubble in the United States and later contributed to the European sovereign-debt crisis, made alternative financial systems more sought after.
“Ever since the global economic crisis in 2007, 2008, I think there’s been a sharp demand for alternative economic and business models, specifically financial models that reduces the level of speculation.
“Conventional model has that inherent weakness and more to kind of a genuine partnership, you share the risk and you share the profit. So Islamic finance has gained a lot of traction,” he said during a press conference at the 11th World Islamic Economic Forum in Kuala Lumpur here.
Former deputy prime minister Tun Musa Hitam agreed with Najib, saying that the 2008 crisis shined a light on lack of corporate governance, which eventually resulted in the bursting of the United States’ housing bubble.
“If you look at the banking scandal, one of the reason was the failure to observe proper governance.
“For example, no transparency, no honesty, fraud actually, cheating actually, this broke up during the course of the years... there was the assumption that western system is the best, everyone went for it, but no one observed the corporate governance part of it,” he explained.
In contrast, Islamic finance prides itself on both the bank and customer shouldering equal risks coupled with greater transparency, which makes it a viable alternative to the western model, Musa said.
“And they realised when they looked at it that there was something that seems to suit and fit into the demands of corporate governance; ethics, orderliness, transparency, very important as mentioned just now the sharing of the risk.
“In the whole system, the so-called established model system, there is risk on the customer not so much on the bank. But in the Islamic system, and this is very well known, it’s 50-50,” he said.
Najib also said that Malaysia has been leading the pack in Islamic finance, especially due to the country being the leading issuer of Islamic bonds, or sukuk bonds, in the world, accounting for 57.4 per cent of total sukuk bonds issued globally.
“In fact you’d be surprised, in Malaysia, more non-Muslims uses Islamic finance than Muslims and that’s an indication of how widespread the support and acceptance of Islamic finance has been,” Najib said during the WIEF opening ceremony this morning.