OBG talks to Wong Soon Koh, Minister of Finance II and Minister of Local Government and Community Development

Interview: Wong Soon Koh

How is Sarawak’s financial services sector evolving, given the state’s focus on other industries?

WONG SOON KOH: The overall progress of all industries in the state will benefit the financial services sector as a whole, particularly with regards to banking, credit unions, real estate funds, insurance companies, investment funds houses, stock brokerages, and accountancy and finance companies. The economic activities in the state are becoming increasing vibrant and complex as Sarawak continues to diversify its economy and thus, demand for services from the financial sector will be very encouraging and will certainly be on a positive growth trend.

The rapid economic and business development in the Sarawak Corridor of Renewable Energy (SCORE) will provide tremendous opportunities for the growth of the financial services sector in the state. These activities will also create great demand from the capital markets sector and encourage Malaysia’s financial institutions to further strengthen their capacity and capability. The financial services sector in Malaysia is under the purview of the federal government through the Ministry of Finance and is regulated by Bank Negara Malaysia, the Securities Commission and Bursa Malaysia. As an integral component of the economy, the government has treated the financial services sector as one of the most important elements of the Economic Transformation Programme, whose objective is to prepare various financial sectors to meet the country’s development targets.

The national budget for 2015 provides initiatives to mitigate income inequality and ease inflationary pressure on vulnerable groups to a certain extent, while at the same time directing resources to productive investments for continued and sustainable growth. Notably, this year’s budget announcement has benefitted the construction sector with numerous huge infrastructure projects to be implemented to accelerate economic growth. One of these projects is the 1663-km Pan-Borneo Highway, comprising 936 km of road upgrading works in Sarawak and 727 km in Sabah at a total cost of RM27bn ($607.5m). This will create opportunities for the growth of the financial services sector as well as the capital markets. While the construction sector is governed by the federal government, the state government has provided support in the form of infrastructure, utilities and lands. The development of these industries will thus contribute towards the state’s goal of becoming a high-income economy by 2020.

What potential does Sarawak hold for the development of Islamic finance, given Malaysia’s aim to establish itself as a major player in the sector?

WONG: Initiatives launched in the national budget for 2015 will boost the Islamic finance sector, improving the prospects for its continued growth and evolution both in Malaysia and on the global stage. Recently introduced measures include the new sharia-compliant investment initiative under the Investment Account Platform (IAP) and the proposed listing and trading of Malaysian government securities and investment issues on the Exchange Traded Bonds and Sukuk platform.

Ventures and businesses struggling to obtain financing for their projects will benefit from this platform, which provides access to a wider investor base. For example, the IAP will be able to use investment intermediaries to match and channel funds between private investors and industries or ventures. Local financial market development has created huge potential and opportunities for Islamic finance to widen its reach throughout Sarawak, particularly because of the ongoing development in the areas that form part of the SCORE. Based on the study that was conducted, RM300bn ($6.75bn) worth of projects were identified for SCORE-related investments and, of this figure, RM30bn ($675m) has been approved.

These developments will therefore involve the creation of supporting commercial, residential and educational institutions in townships, as well as private medical institutions and transport infrastructure, thereby providing ample opportunities for Islamic banks to participate in the financing of these projects.