Malaysia’s Islamic finance sector overhaul a boost for depositors
Lou ruled out the possibility of widening the budget deficit to stimulate the economy. Instead, policy makers have decided to cut the spending of central government agencies by 5 percent, and may use the savings to reduce taxes or increase spending on measures to support jobs and growth, he said. I want to emphasize that the structural economic adjustment is a painful process, Lou said. It wont be possible to enjoy a comfortable life and a rapid growth rate with the structural adjustment. Lou said China shared its plan for further reforms with U.S.
Other possible outcomes for housing finance reform are to maintain the status quo in which Fannie and Freddie are controlled by the government and there is no private capital, or to move to a private system in which government involvement is limited to the small share of loans made with the involvement of agencies such as the Federal Housing Administration that work with targeted groups of borrowers. Both of these alternatives are flawed. The current government-dominated system exposes taxpayers to needless risk and stifles the possibility of beneficial competition and innovation. Not moving forward with reform would lock in this unfortunate situation. A move to a fully private system seems desirable, but it is difficult to see this as a stable outcome or one that actually protects taxpayers in the event of an inevitable future crisis. This is because the government will feel compelled to intervene in the face of any future housing market collapse, regardless of promises that the system was private.
Progress on Housing Finance Reform
While there have been no major problems arising from lax standards, the new law which went into effect last week is seen as a broad way of enforcing closer adherence to Shariah laws, where Malaysia is already a global leader. One of the most important changes is to make Shariah advisers legally liable for the financial products they approve, analysts and industry experts said. The Islamic scholars are hired by banks to assure that financial products abide by Shariah standards. The rule-change would encourage advisers to conduct a closer inspection of the financial products they approve, holding them more accountable, said Mohamad Akram Laldin, executive director of the Malaysia-based International Shariah Research Academy for Islamic Finance. This is a step forward, everyone who is involved will know their duties and what is expected of them, he said. Previous rules governing Shariah compliance were just guidelines. The IFSA elevates them to statutory duties, a breach of which could expose licensed financial entities to punishment.