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Introduction to Islamic Capital Market
In Islamic capital market (ICM), market transactions are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam. There is assertion of religious law that the market is free from activities prohibited by Islam such as usury (riba), gambling (maisir) and ambiguity (gharar).

Malaysia’s ICM has contributed significantly to the development of the overall capital market through further broadening the capital market by providing an attractive alternative source of fund raising and investment. It has expanded in breadth and depth in many aspects including its range of products and services, the number and diversity of its stakeholders, its infrastructure and capabilities, its geographical reach as well as its human capital development.

The size of the ICM in Malaysia has more than tripled during 2000 – 2010, the period of the first Capital Market Masterplan (CMP), or at a rate of 13.6% per annum. Since then, the phenomenal growth momentum has been sustained, with the size of the Malaysian ICM increased by 16.3% annually to reach RM1.42 trillion as at end December 2012. Over the last decade, the market capitalisation of Shariah-compliant companies and the value of sukuk outstanding in Malaysia increased at average rates of 11.5% and 22.2% per annum respectively.

Malaysia continues to enjoy a leadership role as an international centre for ICM. Malaysia has successfully developed various capabilities and capacities in virtually all segments and aspects of the ICM. The key value proposition of Malaysia’s ICM is its comprehensiveness. The institutionalisation of a comprehensive legislative, regulatory, legal, tax and Shariah framework for the industry in Malaysia facilitates the development and growth of ICM.

As a result of the comprehensive framework established, Malaysia offers a wide range of ICM products – Shariah-compliant securities, sukuk, Islamic unit trusts, exchange traded fund and real estate investment trusts, to name a few. At the same time, Malaysia is home to leading Islamic fund management companies and Islamic stock-broking companies that offer Islamic fund management and stock-broking services respectively alongside their conventional businesses.

Malaysia also offers a selection of investment banks, legal firms and Shariah advisers that possess structuring and advisory capabilities for ICM products such as sukuk. Other than the above, the comprehensiveness of Malaysia’s ICM is reflected by the presence of other capabilities and services such as Shariah research, academic institutions offering Islamic finance programmes, and Shariah advisory and consultancy, to name a few.

In terms of growth, Malaysia’s ICM generally outpaces the conventional sector, with a double-digit growth in the market capitalisation of Shariah-compliant equities, value of sukuk outstanding and NAV of Shariah-compliant unit trust funds. The Malaysian sukuk market, which has accounted for the majority of the world’s issuance of sukuk in recent years, continues to attract both issuers and investors including foreign participants, while the IPO Shariah screening process provides certainty and confidence in the Shariah-compliant nature of companies listed on the stock exchange. This includes the screening of foreign IPOs which facilitate the promotion of cross-border Shariah-compliant financing.

The second Capital Market Masterplan (CMP2), launched in 2011, outlined the growth strategies for Malaysia's capital market in the next ten years. The widening of the international base of the ICM has been identified as a key growth driver. To sustain the ICM achieved growth, the CMP2 identified the need to strengthen the service and operational infrastructure, promote Shariah-based approach, and increase international collaboration on Shariah research and product development.

As reflected in the growth projection for Malaysia's ICM under the CMP2, the SC believes that the long-term potential for the ICM remains promising, not only in Malaysia but also internationally. In fact, the projections under the CMP2 are premised largely on the ICM achieving greater internationalisation, which more product as well as service providers expanding beyond their home market. It is expected that Malaysia’s ICM will grow at an average rate of 10.6% annually, over the 10-year period to 2020.