Here on Shariah Finance Watch we have documented that Malaysia is ground zero in the Pacific Rim for Shariah Finance:
Almost all of the financial news out of the Malaysian capital of Kuala Lumpur over the past year has been centered around “Islamic” finance and banking. The country’s prime minister and other cabinet members have been frequently vocal in Malaysia’s role as a center of Shariah Finance.
Now we learn that there is financial trouble in Malaysia: capital is fleeing Malaysia at an unprecedented rate and according to the report linked below, “primitive religious authorities” are at least partially to blame. Malaysia’s foreign exchange reserves fell by a massive 25% during 2009.
Some in Malaysia had been banking on the inflow of Middle Eastern money due to the embrace of Shariah Finance. So far that hasn’t happened and the use of sukuk (Islamic bonds) has been seen as counterproductive. Sukuk have earned a much deserved bad reputation in the financial world due to a rash of defaults and severe lack of transparency and disclosure. Sukuk were meant to attract the Middle Eastern money which has failed to materialize. And to add insult to injury, non-Islamic investors are understandably gunshy when it comes to sukuk.