Islamic Finance and the Development of Malaysia’s Halal Economy

TALKING POINTS FOR YB DEPUTY FINANCE MINISTER

REPORT LAUNCHING: ISLAMIC FINANCE AND THE DEVELOPMENT OF
MALAYSIA’S HALAL ECONOMY

October 3, 2022 (Monday)

Conference Hall 2, Sasana Kijang

1. Distinguished guests, Encik Suhaimi Ali, Assistant Governor of Bank Negara Malaysia, Dr Yasuhiko Matsuda, Country Manager for the World Bank Group Inclusive Growth and Sustainable Finance Hub in Malaysia, honorable panelists,, ladies and gentlemen.
   
   
2. I am pleased to deliver the keynote address for the launch event of the report “Islamic Finance and the Development of Malaysia’s Halal Economy”. Let me start by extending my gratitude to the World Bank, Bank Negara Malaysia (BNM), Securities Commission Malaysia (SC), financial institutions and intermediaries, Halal agencies and to others for their commitment and continuous efforts to support Malaysia’s halal economy and Islamic financial markets.
   
   
3. I would like to touch on several key points that are worth noting in advancing the growth of Malaysia’s halal economy.

Ladies and Gentlemen,

4. Firstly, Malaysia ranks among the top Halal export countries in the world and the halal economy is one of the key sectors of growth for Malaysia.
   
   
5. Official statistics from the Halal Development Corporation (HDC), indicated that halal exports climbed 19.0% from RM30.5 billion in 2020 to RM36.3 billion in 2021, accounting for 2.9% of Malaysia’s overall exports. Our top halal export destinations are China, Singapore, United States, Japan, and Indonesia among others. Food and Beverage, along with Halal Ingredients, Cosmetics and Personal Care, Palm Oil Derivatives, Industrial Chemicals, and Pharmaceuticals, are the top product categories in 2021.
   
   
6. In term of investments, our halal parks have attracted a cumulative total of RM16.1 billion since 2011 from both foreign and domestic players. A total of 295 companies are currently in operation throughout the 21 halal parks across Malaysia, with 42 companies being multinational corporations (MNCs), while the remaining are locally owned corporations.
   
   
7. Under the Twelfth Malaysia Plan 2021-2025 (12MP), as part of the government’s priority to accelerate the development of strategic and high-impact industries and their contribution to the nation’s GDP, the government has outlined a strategy towards fostering the competitiveness of an inclusive halal industry. By 2025, the export value of halal products is targeted to grow to RM56 billion whilst the contribution of the halal industry to GDP is targeted to grow to 8.1% from 7.5% in 2020.
   
   
8. Secondly, collaborative efforts are required to support an innovation-led growth of Malaysia’s halal industry and develop more home-grown halal champions particularly amongst the micro, small and medium enterprises (MSMEs).
   
   
9. The government notes that the halal industry continues to face several issues and challenges, among others:
   
   
   1. lack of capacity for innovation and research and development (R&D) to produce high value-added products and services; and
      
      
   2. lack of dynamism of our domestic halal MSMEs to strengthen Malaysian halal brands as well as enhance products visibility.
      
      
10. On innovation and R&D, Malaysia’s halal industry players come from a wide range of industries such as F&B, chemicals, agriculture, and pharmaceuticals – each industry differs in respect of market trends, market composition, stage of growth and technology adoption.
    
    
11. Currently there are various on-going initiatives such as the National Fourth Industrial Revolution (4IR) Policy, which is the overarching national policy to drive the nation’s 4IR and MyDIGITAL – Malaysia Digital Economy Blueprint that is intended to spur the growth of Malaysia’s digital economy. These initiatives can be leveraged to support the strategies and achieve the halal industry targets.
    
    
12. The pharmaceutical industry has significant untapped potential with the growing demand for halal pharmaceuticals, which is projected to reach RM435 million by 2024 compared to RM390 million in 2019.2 Funding for innovation and R&D will require support from both the public and private sector to manage risks and attract potential long term investors.
    
    
13. On the dynamism of domestic players, HDC data indicated that about 13.5% of the RM36.3 billion of halal exports in 2021 was contributed by small and medium sized enterprises (SMEs) while the remaining 86.5% was contributed by multinational corporations (MNCs).
    
    
14. Malaysia’s halal certification issued by JAKIM is well-recognized globally as a highly credible halal credential and is accepted by 84 other halal certifying bodies in 46 countries more so than any other halal credential by any other country. Malaysia’s halal certification creates business value to halal industry players in the global export market. Many MSMEs have not been fully integrated into the global halal supply chain as many do not have halal certification due to their inadequate capacity to obtain certification, expertise, network and funding.
    
    
15. Malaysia local products have the potential to be marketed at the global level. This will require collaboration between the private and public sector to help develop brand value and utilizing new media technology such as social media to increase awareness and generate more interest in our local brands. Trade expositions such as the World Halal Business Conference (WHBC) organized by HDC and Malaysia International Halal Showcase (MIHAS) organized by Malaysia External Trade Development Corporation (MATRADE), also in association with HDC, are important platforms to showcase Malaysia brands.

Ladies and Gentlemen,

16. Thirdly, the Islamic finance ecosystem in Malaysia can be considered as mature and has great potential to support the development of the halal industry.
    
    
17. The domestic Islamic finance industry has been in existence for over 30 years3. Malaysia has a significant number of full-fledged Islamic banks, including several foreignowned entities. Malaysia also has a well-established financial regulatory framework with well-designed rules and regulations, managed by BNM and SC among others. The fintech industry is also showing promising progress. The country has potential to be among the world leaders in fintech as it has shown a steady growth in fintech investments and activities with Malaysia’s fintech sector growing by 27% in 2021 to 294 fintech companies.
    
    
18. In the Halal Industry Master Plan 2030, Islamic finance has been identified as one of the key enablers to support the implementation of the plan through the innovative Islamic financing structures.5 This plan has outlined several recommendations to enhance the role of Islamic finance in facilitating funding to encourage quality, innovative and competitive Halal industry offerings; develop high-performing home-grown enterprises; and spur sustainable, balanced and inclusive socio-economic growth.
    
    
19. Collaboration between the public and private sector will be key to mobilizing funding to the halal industry – by merging expertise to innovate alternative funding solutions and sharing risk. The potential of  slamic social finance instruments such as waqf and zakat could be explored further to develop micro enterprises amongst bumiputera halal industry players.
    
    
20. At the end of 2021, HDC launched the Halal Integrated Platform (HIP) – a digital platform, which connects halal industry players globally and is a one-stop center for halal business support such as halal certification advisory, export, and funding facilitation. AS of 2021, five Islamic banks have become strategic partners of the platform. I believe that HIP has a great potential to become the  eading global marketplace for halal industry players and would encourage other financial providers to collaborate with HDC to make HIP a success.

Ladies and Gentlemen,

21. In conclusion, the development of Malaysia’s halal industry requires the integration of Islamic financial products and services and sectoral activities including capital raising and financial inclusion of micro, small and medium enterprises (MSMEs).
    
    
22. Together with the Halal Industry Masterplan and active participation from various institutions and agencies including financial regulators, financial institutions, Halal agencies such as Halal Development Corporations, JAKIM and industry players, the role and contribution of Islamic finance can be lifted further not only in Malaysia but also in the global arena.
    
    
23. At the Ministry of Finance, we will continue to work with BNM and SC to position Malaysia as part of global leader in spearheading Islamic finance and halal economy.

With that, Bismilahirahmanirahim, it is my pleasure to launch the World Bank report on “Islamic Finance and the Development of Malaysia’s Halal Economy”.

Thank you