Bursa Malaysia, the state-controlled financial exchange, is in talks with Middle Eastern banks to boost activity on its 18-month-old Islamic commodities market that increased five-fold last year.
Daily trading averaged RM351 million (S$147 million) in 2010, up from RM69.6 million in 2009 and has reached as high as RM4 billion this year, Raja Teh Maimunah, global head of Islamic markets at Kuala Lumpur-based Bursa, said in an interview on Monday.
Murabahah transactions handled by Islamic banks in the Gulf Cooperation Council are about US$12 billion to US$15 billion daily, she said.
The Bursa Suq Al-Sila exchange offers Murabahah, which comply with Islam's ban on receiving interest because lenders purchase goods, usually a commodity, and sell them on to the customer at a mark-up. Attracting Persian Gulf banks will help expand the market, after palm oil producers such as IOI Corp. said trading is too little for them to be actively involved.
'Saudi Arabia clients trade a lot more and also our Emirati clients so these banks will significantly boost trading,' said Raja Teh. 'We're currently talking to about six big ones, including one central bank in the Middle East.'
Bahrain Exchange Al Rajhi Bank and Alinma Bank, two of Saudi Arabia's 10 largest lenders, became members of Bursa Suq Al-Sila last year, joining HSBC Holdings and Standard Chartered. The exchange has 33 registered members, comprising financial institutions, commodity suppliers and financial brokers, according to Bursa's website. As many as 21 types of commodities including coal, copper and zinc have been approved by Malaysia's Shariah Advisory Council to trade on the exchange, Raja Teh said.
Malaysia may benefit from inflows from the Middle East as investors avoid the region because of political unrest, said Mohamad Radwan Alami, a board member of the Arab Malaysian Chamber of Commerce and president of Alami Group, which operates palm oil refineries in Malaysia and the Middle East.
'Arab investors are interested in Malaysia's financial, industrial and property sectors including the Islamic finance industry,' Mr Alami told reporters in Kuala Lumpur on March 3.
Malaysia has been a recipient of foreign funds since 2008 when the global financial crisis drove investors out of developed markets into the developing world in search of higher returns, Zeti Akhtar Aziz, governor of Bank Negara Malaysia, said in Kuala Lumpur last week.
Malaysia, home to about 17 million Muslims, is the world's biggest market for Islamic bonds, or sukuk, with RM338 billion in assets that comply with Islam's ban on interest, according to the Finance Ministry.
Global sales of sukuk climbed to US$3.9 billion in the first two months of 2011 from US$676 million in the same period last year. Issuance fell 15 per cent in 2010 to US$17.1 billion.