- March 10, 2023
The Challenges of Sukuk in Malaysia: Overcoming Hurdles for the Islamic Capital Market
Sukuk, a type of Islamic financial instrument, has seen significant growth in Malaysia, becoming a key player in the global Islamic finance market. However, despite its success, there are still several challenges that need to be addressed in order to continue its growth and development. This article will explore the current challenges faced by the Malaysian Sukuk market and provide potential solutions for overcoming these hurdles.
Lack of Standardization
One of the major challenges faced by the Malaysian Sukuk market is the lack of standardization. Different Sukuk products are structured differently, making it difficult for investors to compare and assess their risk and returns. In addition, there is also a lack of standardization in the issuance process, which can lead to confusion and complexity.
Solution: Establishing a standardized framework for Sukuk products and the issuance process will help to increase transparency and reduce confusion for investors. This can be achieved through the development of industry guidelines, regulations, and best practices. The Malaysian Securities Commission can play a role in promoting standardization by issuing clear guidelines and working with industry players to ensure that they are adhered to.
Lack of Liquidity
Another challenge faced by the Malaysian Sukuk market is the lack of liquidity. Unlike traditional bonds, Sukuk are not actively traded on secondary markets, making it difficult for investors to exit their investments. This lack of liquidity can also make it difficult for issuers to raise capital and for investors to access a diverse range of investment opportunities.
Solution: Increasing the liquidity of the Sukuk market can be achieved by developing secondary markets for Sukuk trading. This can be done by establishing clearing and settlement systems, as well as providing incentives for market participants to trade Sukuk. The Securities Commission can also play a role in promoting liquidity by encouraging market participants to develop innovative solutions and participate in secondary market activities.
Limited Investor Awareness
Despite its growth, there is still a lack of awareness among investors regarding the benefits and potential of Sukuk investment. Many investors still view Sukuk as a niche investment, with limited understanding of the various types of Sukuk products available and the potential returns that can be achieved.
Solution: Improving investor awareness can be achieved through education and outreach efforts. This can be done by holding seminars and workshops for investors, as well as promoting Sukuk products through various media channels. The Securities Commission can also play a role by working with industry players to develop educational materials and initiatives that can be used to increase investor awareness.
The Malaysian Sukuk market has come a long way in a short amount of time, but there are still several challenges that need to be addressed in order to continue its growth and development. Addressing these challenges will require the cooperation and collaboration of industry players, regulators, and government agencies. By working together, the Malaysian Sukuk market can overcome these hurdles and continue to be a key player in the global Islamic finance market.