Nurturing Islamic Financial Markets – Malaysia’s Path and ASEAN’s Potential

It is such a pleasure to be here today at the IFN Asia Forum 2025. This gathering offers an excellent platform to continue our ongoing conversations on harnessing our synergy for greater impact through Islamic finance. This year’s forum holds particular significance as Malaysia assumes its ASEAN Chairmanship. As Chair, Malaysia focuses its efforts in advancing inclusive and sustainable economic growth, and Islamic finance stands as one of the key enablers in realising these shared aspirations across ASEAN.

Ladies and Gentlemen,

The global Islamic finance landscape continues to gain strong momentum. With total assets now reaching USD3.9 trillion^[1], the sector continues to expand beyond its traditional borders. A growing number of nations including emerging economies like Nigeria, South Africa and the Philippines, as well as established financial centres such as Hong Kong and the UK are embracing Shariah-compliant finance. This expansion reflects not only growing demand for ethical financial solutions but also the sector’s ability to adapt and innovate.

However, this growth is unfolding amid heightened macroeconomic challenges. Many economies are navigating persistent inflationary pressures, adjusting monetary policies, and geopolitical uncertainties that have implications for trade and capital flows. At the same time, governments and institutions face increasingly large funding needs, particularly in areas such as infrastructure, climate resilience, and social development. These dynamics highlight the urgent need for more resilient, inclusive, and values-driven financial models. The global search for ethical, stable, and sustainable financial solutions presents a timely opportunity for Islamic finance to move further into the mainstream — helping to bridge funding gaps and support long-term economic sustainability across diverse markets. Islamic finance proposition lies in its core principles, which include strong linkages to the real economy, the avoidance of excessive speculation, and inbuilt expectations on ethical conduct.

As global Islamic finance landscape evolves, the regional role must also evolve — not just as a participant, but as a proactive architect of the future. Today, the East Asia and Pacific region accounts for 21.9% of global Islamic assets, underscoring its strategic influence and significant potential. The ASEAN bloc itself, comprising 660 million people and a combined GDP exceeding USD3.9 trillion, stands as a dynamic and diverse economic community. Its growing interest in sustainable and values-based finance positions ASEAN as a key player in the future of Islamic financial markets.

Within this regional context, Malaysia has remained steadfast in its decades-long commitment to building a forward-looking Islamic finance ecosystem. In Malaysia, Islamic finance has been established as a mainstream instrument in the domestic financial system, reflecting its maturity and strategic utility within the domestic economy. The journey, however, is far from over.

The challenges facing financial markets today — from liquidity constraints to limited diversification and shallow capital markets — demand bold, forward-looking responses. And these challenges are not unique to Malaysia but I believe is also relatable to many other Islamic financial markets. Hence, Malaysia’s continued journey is not only about sustaining growth but with emphasis for the growth to be supported by a robust Islamic financial ecosystem that is broader in scope, more agile in structure, and more aligned with the values and aspirations of the region.

First, our effort will focus in broadening the range of Shariah-compliant assets and deepening the markets are essential to support liquidity, enhance price discovery and enable effective financial intermediation.

One of the significant recent advancements in this developmental area is in the Islamic repo industry. The industry has collectively enhanced the Sell and Buy Back Agreement (SBBA) template, aligning it with the Global Master Repurchase Agreement (GMRA) standards. This alignment introduces key features such as margining, profit disbursement and asset substitution, bringing Islamic repo closer to global benchmarks.

Complementing this is the issuance of the Islamic Collateralised Funding Policy Document. This policy provides a structured framework for Islamic repo transactions, setting out clear requirements for legal documentation, risk management, custody and reporting. Since its adoption, the Islamic repo market has expanded 2.4 times, reaching RM42.6 billion in 2024 — a clear signal of strong market uptake and growing liquidity.

Second, we believe, innovation must remain at the heart of Islamic finance evolution. It is not enough to be ahead, the industry must be purposeful and anchored in values. Innovation in Islamic finance must reflect Shariah principles and be responsive to the changing needs of businesses, investors, and communities.

A recent notable innovation is in the world of Islamic derivatives, particularly the introduction of anticipatory hedging. It enables Islamic financial institutions to proactively manage future exposures, even before the underlying transaction materialises. This marks a major step in aligning Islamic derivatives with global risk management practices, while avoiding elements of gharar and maysir through rigorous controls and Shariah safeguards.

The sukuk market is also evolving and Malaysia is preparing to issue sovereign sukuk based on Wakalah bi al-Khadamat structure using intangible service rights as underlying assets, reflecting more meaningful economic linkages. In parallel, Malaysia is also actively exploring Waqf-based instruments to mobilise resources. These developments reflect a broader aspiration to build an Islamic financial system that is not only innovative, but also impactful and future-ready.

Looking ahead, tokenisation of sukuk and Islamic assets remains a frontier innovation. It has the potential to enhance transparency, reduce transaction costs and expand investor access particularly for retail and cross-border participants. This is especially relevant for ASEAN, where digital adoption remains a shared priority. In Indonesia, fintech platforms are increasingly integrating Islamic microfinance tools in their offerings, while Brunei has established a fintech regulatory sandbox to support Shariah-compliant business models such as Islamic peer-to-peer crowdfunding platform.

Ladies and gentlemen,

Third, Islamic finance must lead with instruments that deliver real, measurable impact. Sustainability is no longer a peripheral agenda — it is central to the future of Islamic finance. As global demand for ethical and green finance accelerates, The principles of Islamic finance are inherently aligned with the sustainability agenda and Malaysia’s Islamic finance ecosystem is well-positioned to support the transition, anchored by national aspirations outlined in the National Energy Transition Roadmap (NETR) as well as the New Industrial Masterplan (NIMP).

The growth of Sustainable and Responsible Investment (SRI) sukuk is a clear reflection of this momentum. In 2024, SRI assets in Malaysia reached RM11.9 billion^[2], representing a ninefold increase since 2017. This surge reflects growing investor appetite for Shariah-compliant instruments that align with sustainability values.

Another key step forward in this space is the Sustainable SBBA model, which integrates sustainability principles into secured interbank instruments.

Malaysia is also advancing the development of Impact Investment Accounts which channels investment proceeds into sectors aligned with the United Nations Sustainable Development Goals (SDGs) including renewable energy, clean transportation, and sustainable cities, while a portion of the investment return will be channelled to either zakat or Sadaqa House.

Across ASEAN, sustainability is gaining meaningful traction in Islamic finance. Indonesia has long been mobilising green sukuk, including retail offerings, to fund green projects that contribute to climate change mitigation and adaptation as well as preserving biodiversity. In the Philippines, Islamic finance is being explored to support inclusive development in Mindanao, with a focus on agriculture and microfinance. Thailand is piloting Islamic finance instruments to support halal SMEs through its Halal Economic Corridor (HEC) initiative. Collectively, we must continue to build the pathway and success stories.

Ladies and gentlemen,

Islamic finance today stands at a defining moment. Beyond its role in promoting financial stability, it presents a compelling framework for ethical transformation, inclusive development and global resilience. To unlock its full potential, we must foster strategic partnerships and co-create solutions that address shared challenges while opening new doors of opportunity.

In light of the continuous advancements highlighted earlier, we extend an open hand to the global community to collaborate with Malaysian players and within ASEAN. Our collective aspiration is to build a resilient, inclusive and future-ready Islamic financial ecosystem — one that is deeply connected to the real economy and contributes meaningfully to global connectivity.

Allow me to remind myself and others of the words from Surah An-Najmi, verses 39–40: “And that man shall have nothing but what he pursues for, and that his effort will soon be seen.”

The verses remind us that progress in Islamic finance, like all other meaningful endeavours, is shaped by the sincerity and effort of those who strive, that true outcomes can be realised.

With that, I wish all participants a transformative session today. Thank you.

^[1] IFSB Stability Report 2025

^[2] BERNAMA (24 March, 2025). Sri Sukuk Issuances Rise Ninefold To RM11.9 Bln In 2024.