Why is Malaysia urging Japan to partner in Islamic finance?

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Malaysia seeks to leverage Japanese expertise for a formidable alliance in Islamic finance, tapping into the substantial global market and untapped Southeast and East Asian potential.

Malaysia is urging Japan to partner in Islamic finance to establish a formidable alliance that can tap into the vast global market, particularly in Southeast and East Asia. This strategic partnership aims to combine Japan's industrial expertise and technology with Malaysia's technical proficiency in Islamic finance. The initiative seeks to address the significant untapped potential within Southeast Asian markets such as Indonesia, the Philippines, Thailand, and Cambodia, fostering mutual growth and expanding financial opportunities.
Leveraging Untapped Southeast and East Asian Markets

Prime Minister Datuk Seri Najib Razak highlighted that despite rapid growth rates, the demand for Islamic finance in Southeast Asia remains largely untapped. He specifically pointed to Indonesia's potential as an area that has hardly been explored, alongside interest from the Philippines, Thailand, and Cambodia. This presents a significant opportunity for collaboration, with Malaysia welcoming Japan's involvement in these developing markets.
Building on Previous Discussions and Technical Assistance

The proposal for a joint venture in Islamic finance was first discussed between Najib and his Japanese counterpart Shinzo Abe in July 2013. During that meeting, discussions focused on securing support from the Japanese government and its authorities to encourage Japanese enterprises, financial institutions, and investors to engage in Islamic finance activities with Malaysia. In return, Malaysia offered to provide technical assistance to Japan in this specific financial sector.
Capitalising on Malaysia's Leadership in Sukuk Issuance

Malaysia has established itself as a consistent leader in issuing sukuk, a key instrument in Islamic finance. In 2014, Malaysia accounted for a significant portion, 57.4%, of the global total outstanding sukuk, amounting to US$173 billion out of a global total of just over US$300 billion. This demonstrates Malaysia's established expertise and its strong position within the global Islamic finance landscape, making it an attractive partner for Japan.
Addressing the Growth of Global Islamic Finance Assets

The global Islamic finance market represents a substantial and growing sector, with estimated assets reaching US$2 trillion. Between 2009 and 2014, this sector experienced an impressive compounded annual growth rate of 17%. The presence of Japanese financial institutions, such as the Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Corp Malaysia, already engaging in Islamic finance activities in Malaysia, indicates a growing interest and paves the way for broader cooperation.

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Why is Malaysia urging Japan to partner in Islamic finance?

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