By Santhosh V Perumal/Business Reporter /Kuala Lumpur


More than one-third of small and medium enterprises (SMEs) in the Middle East and North Africa (Mena) are out of the purview of banking sector and there exists a funding gap of up to $13bn for SME Islamic financing in the region.
Moreover sukuk, or Islamic bonds, have gained real momentum with many non-Muslim countries raising funds through these instruments, said Malaysian Premier Dato Sri Mohamad Najib bin Tun Haji Abdul Razak at the 11th World Islamic Economic Forum (WIEF), which got underway here yesterday and attended by more than 3,000 delegates from 98 countries.
“35% of SMEs in the Mena are excluded from the formal banking sector. Indeed, there is a financing gap of up to $13bn for SME Islamic financing in this region,” Razak said, quoting a study by International Finance Corp (IFC).
Finding that millions of SMEs are thriving in communities across the Islamic world, he said “moving forward, we need to provide them greater opportunities to expand and to be able to compete in wider markets. In this mission, these SMEs face the same challenge as all SMEs worldwide – lack of funding.”
Islamic finance, with its equity-based partnership schemes, offers a truly workable alternative to conventional banking, a partnership that also embeds the participating financial institution as a provider of advice and consultancy, he said.
Highlighting that Islamic finance is currently gaining more and more visibility and is better-equipped to assist the SME industry, he said as of last year, Malaysia’s total SME financing exposure in Islamic finance grew by 40.5% year-on-year, to more than $10bn.
Finding that currently, global Islamic financial assets are estimated at $2tn, Razak said the figure may be small compared to conventional financial assets, but it is still “very promising” when one considers that Islamic finance started to gain traction only in the last decade.
He said Islamic financial institutions are well-placed to withstand the global financial crisis of 2007-2008, and emerged from it more or less unscathed. That should not be surprising, given their prohibition of speculation, prohibition of uncertainty in contractual relations, prohibition of usury, and their greater usage of risk and profit sharing.
Over-leveraging is believed to have been the root cause of the disaster, which is prohibited in Islamic finance, Razak said, adding as a result, Islamic banks remained strongly capitalised and resilient to financial market volatility, while continuing to contribute positively to equitable and sustainable growth.
Sukuk, he said, have gained real momentum in recent years. In 2014 alone, several non-Muslim countries such as the UK, Hong Kong, South Africa and Luxembourg launched sovereign sukuk.
Malaysia has consistently been the largest issuer of sukuk in the world. In 2014, the total global sukuk outstanding was just over $300bn with Malaysia accounting for $173bn, or 57.4%, of the total, while Saudi Arabia came second, accounting for $50.4bn or 16.7%. Page 3