Kompenen Utama Sistem Kerajaan Malaysia
WP/12/151
What’s in It for Me? A Primer on Differences between Islamic and Conventional Finance in Malaysia
Olga Krasicka and Sylwia Nowak
© 2012 International Monetary Fund
WP/12/151
IMF Working Paper Asia and Pacific Department What’s in It for Me? A Primer on Differences between Islamic and Conventional Finance in Malaysia Prepared by Olga Krasicka and Sylwia Nowak1 Authorized for distribution by Sanjaya Panth June 2012 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Abstract What attracts conventional investors to Islamic financial instruments? We answer this question by comparing Malaysian Islamic and conventional security prices and their response to macrofinancial factors. Our analysis suggests that Islamic and conventional bond and equity prices are driven by common factors. Likewise, especially in recent years, Islamic banks have responded to economic and financial shocks in the same way as conventional banks, suggesting that the gap between Islamic and conventional financial practices is shrinking. JEL Classification Numbers: E44, G15, G21 Keywords: Islamic banks; conventional banks; Sukuk; Malaysia Author’s E-Mail Address: olga.krasicka@doktorant.sgh.waw.pl; snowak@imf.org
1
This paper was prepared when Olga Krasicka was a summer intern at the International Monetary Fund. The authors would like to thank Sergei Dodzin for guiding this research; Ravi Balakrishnan, Rodrigo Cubero, Subir Lall, Ceyda Oner, and participants of seminars at IMF’s Asia and Pacific Department and Bank Negara Malaysia for helpful comments; and Dulani Seneviratne for invaluable research assistance.
2 Contents Page
I. Introduction
What’s in It for Me? A Primer on Differences between Islamic and Conventional Finance in Malaysia
Olga Krasicka and Sylwia Nowak
© 2012 International Monetary Fund
WP/12/151
IMF Working Paper Asia and Pacific Department What’s in It for Me? A Primer on Differences between Islamic and Conventional Finance in Malaysia Prepared by Olga Krasicka and Sylwia Nowak1 Authorized for distribution by Sanjaya Panth June 2012 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Abstract What attracts conventional investors to Islamic financial instruments? We answer this question by comparing Malaysian Islamic and conventional security prices and their response to macrofinancial factors. Our analysis suggests that Islamic and conventional bond and equity prices are driven by common factors. Likewise, especially in recent years, Islamic banks have responded to economic and financial shocks in the same way as conventional banks, suggesting that the gap between Islamic and conventional financial practices is shrinking. JEL Classification Numbers: E44, G15, G21 Keywords: Islamic banks; conventional banks; Sukuk; Malaysia Author’s E-Mail Address: olga.krasicka@doktorant.sgh.waw.pl; snowak@imf.org
1
This paper was prepared when Olga Krasicka was a summer intern at the International Monetary Fund. The authors would like to thank Sergei Dodzin for guiding this research; Ravi Balakrishnan, Rodrigo Cubero, Subir Lall, Ceyda Oner, and participants of seminars at IMF’s Asia and Pacific Department and Bank Negara Malaysia for helpful comments; and Dulani Seneviratne for invaluable research assistance.
2 Contents Page
I. Introduction
References: (In US$ billions) 1,200 1,000 800 600 400 200 0 2007 Source: BMB Islamic (2011). 2008 2009 2010 Islamic Republic of Iran Saudi Arabia Malaysia Other countries full range of financial products and services; often use the same infrastructure (Yakcop, 2003); 2 Sources: PricewaterhouseCoopers Malaysia (2008) and Solé (2007). Source: PricewaterhouseCoopers Malaysia (2008) and Bhupalan (2009).