Contemporary Islamic Economic Thought and Policy: Policies and Institutional Reforms in Malaysia1 By Mohamed Aslam Haneef Abstract

For the last 3 decades, the resurgence of Islam has led to reforms in many Muslim countries, promoting- at different levels- policies and institutions related to Islamic economics, banking and finance. The development experience in many Muslim countries over this period has clearly challenged the modernization/ secularization thesis of the 50s and early 60s that proposed a declining role of religion in society. This paper will attempt to deliberate the case of Malaysia, where its development experience will allow us to provide a possible case-study of the development of contemporary Islamic economics and Finance, especially on the policy and institutional reforms that were undertaken and their impact on economic development. The paper argues that the development of these policy and institutional reforms in Malaysia had the four important ingredients necessary for reforms, namely, political will, credible initiators and communicators of Islamic reforms, the establishment of Islamic economic and financial institutions and supporting legal/educational/social/ reforms, undertaken in a relatively accommodative and flexible manner, reflective of the plural nature of Malaysian society. The paper is divided into 3 sections: Section 1 provides a brief overview of the Malaysian economy and surveys the role of Islam over the last five decades. It also shows that the simple decline in religion hypothesis of modernization/secularization theses may not apply in the case of Malaysia. Section 2 presents some of the Islamic institutional and policy initiatives since the 1980s, a period that could be seen as a watershed in the official Malaysian governments position on religion and its role in development. Section 3 attempts an analysis of these reforms and policy initiatives, in light of some scholarly debates on the role of religion, Islam and economic development, followed by a conclusion.

Introduction Malaysia is a country of 27 million of whom about 65% are Muslims (9th Malaysia Plan), which in the period 1981 to 1998, had become one of the leading Muslim nations in terms of its economic development record and Islamic institutional reforms. The paper argues that the development of these institutional and related reforms in Malaysia have, as with most things in the nation, been largely accommodative, flexible and pluralist in nature. While data related to financial statistics and figures may show one dimension of the impact of these reforms, the paper also takes a look at some seemingly non-economic measures that have been implemented in Malaysia since 1981 that have had economic outcomes. In the case of Malaysia, the paper agrees with Nasr (2001)2 that the state has played a key role in embedding Islam to politics and, to a lesser degree, in economics.
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Paper presented in seminar organized by BIIT in Dhaka, Nov 2009. A slightly modified version of this paper was presented at the 4th Southern African Economic Seminar, Durban, South Africa, November 1517, 2008. Much of the content in Section 2 of this paper is taken from two previous works: Mohamed Aslam Haneef, 2001 and 2005. 2 Nasr, Seyyed Vali Reza (2001). The book makes a comparison of Islam and the role of the state in these two countries in promoting Islamic reforms.

We also acknowledge the analysis of Lawrence (1998)3 who described the Malaysian model of Islamic reforms as representing the corporate Islam model that has uniquely stressed the economic dimension of jihad in its quest for development. Section 1: Brief Overview of Malaysian Economy and Policy Framework Malaysia has always had a capitalist, market-based economy, although the level of state involvement in the economy has varied over the last 43 years ranging from a generally laissez-faire approach from 1957 to1969 to one with greater state domination from 1970 to1985. From about the mid 1980s to 1998, Malaysia followed many of the prescriptions of the neo-liberal market proponents of deregulation, liberalization and privatization. Briefly, during the East Asian crisis of the late 1990s, Malaysia went unconventional by imposing selective capital controls, fixing its exchange rate and adopting a very antiwest, anti-globalization stand.4 Nevertheless, the market based, capitalist system is very much intact. These changes apart, one must realize that from 1970 to1990, the over-riding, dominant policy in the country was the New Economic Policy (NEP), a major social-engineering exercise that set out to achieve the goal of national unity (in the aftermath of the 1969 riots) via two sub-objectives of eradicating poverty irrespective of race, and restructuring society to eliminate the identification of occupation with race. The NEP was an ethnic based policy, where goals and their targets were formulated and implemented according to the bumiputera- non-bumiputera categories5. Till today, despite it being 18 years since the end of the NEP, these categorizations still persist in public discourse and continues to be one of the most sensitive topics in Malaysia and Malaysian politics. The NEP was replaced with the National Development Policy (NDP) that covered the period from 1991 to 2000. It had the overall objective of attaining balanced development to achieve national unity and to provide the continuity in Malaysian development objectives of achieving 'developed' status by the year 2020.6 Many Chinese and Indian Malaysians were hoping that the NDP meant the end of the ethnic based policies of the
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Lawrences analysis of events in Malaysia are also generally positive, as is Nasrs on the direction taken in Malaysia to focus on a more social/economic programme rather than emphasizing on rituals and legal aspects of the religion. 4 While the selective capital controls were almost reversed within six months, as of August 31 2000, the Ringgit-USD peg remained till 2005. The anti-west /anti-globalization stance has toned down since Abdullah Ahmad Badawi took over from Dr. Mahathir Mohamad as Prime Minister in October 2003. Despite all the rhetoric, it must however be reiterated that Malaysia is still a very trade-dependent economy, especially to the OECD countries. Certainly with respect to the US, Malaysia is the most dependent country in Asia, with exports (direct and indirect) to the US still totaling about 25% of GDP. 5 Bumiputera are the indigenous peoples of Malaysia consisting of the Malays in Peninsula Malaysia and other ethnic groups such as the Iban, Kadazan etc. in East Malaysia (i.e. Sabah and Sarawak). Nonbumiputera usually are taken to mean the Chinese and Indian immigrants that came to then Malaya or who were brought by the British especially during the last quarter of the 19th and first half of the 20th centuries. 6 In the Second Outline Perspective Plan (1991-2000), the theme 'Vision 2020' was introduced, where developed status, according to the Malaysian mould, was to be achieved. This 'vision' was set to dominate all development objectives for the next thirty years, just as the New Economic Policy did for the period 19701990. It has not , however, been as influential as the latter.

NEP7. This ultimate goal has been promoted under the more popular banner of Vision 2020, underlying the various challenges that must be faced by the country and its peoples. In March 2001, the Third Outline Perspective Plan (OPP3) was presented in Parliament and saw the birth of the National Vision Policy (NVP) 2001-2010, which can be seen as a continuation of the NEP and NDP, but with modifications incorporating globalization and lessons from the economic crisis of 1998. Throughout the period of the first three Prime Ministers (1957-1981), no express mention was made about Islam playing any role whatsoever in economic policy and activity. Despite being stated as the 'religion of the Federation (of Malaysia), Islam was limited to 'ceremonial' functions (Roff, 1980) In fact the first Prime Minister, Tunku Abdul Rahman- a Malay aristocrat- never hid his preference for a secular development policy, consistently warning of the dangers in any attempt to create an Islamic state. Some would even say that Malaysian independence was achieved without the bloodshed of countries like Indonesia because the British were confident that the future leadership of (then) Malaya, would continue to implement policies that were in line with the general tenets of the modernization thesis to be discussed later.8 Hussin Mutalib (1990)9 was of the view that during the early days of independence, Islam was not granted a prominent role in the governance of the state, similar to that in many other Muslim nations.
The need to address the more pressing issues of nation-building also resulted in government policies which did not pay much attention to Islamic principles, nor to the development of Islamic socio-economic infrastructures and institutions. This is evident from the extent to which Islamic principles were incorporated into the Constitution.The first Malay Chief Justice after independence, Tun Mohamed Suffian Hashim, interpreted in 1962, the type of role that Islam should play under the terms of the Constitution: primarily for the ceremonial purposes, for instance, to enable prayers to be offered in the Islamic way on official public occasions such as the installation or the birthday of the Yang diPertuan Agong (king), Independence Day and similar occasions. (1990, p. 23)

However, as in many other parts of the Muslim world, changes were in motion. Besides the Islamic Party of Malaysia (PAS), other Islamic groups like the Persatuan Kebangsaan Pelajar-Pelajar Islam Malaysia, PKPIM (Malaysian National Association of Muslim Students), Angkatan Belia Islam Malaysia, ABIM (Muslim Youth Movement of Malaysia) and Darul Arqam were formed in the late sixties and early seventies, demanding a greater role for Islam in Malaysia. This was also due to the Islamic resurgence that was beginning to
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The NEP should be seen as a government policy to manifest certain constitutional privileges given to the Malays and other indigenous peoples of Malaysia, reflected in various articles of the Malaysian Constitution. 8 For more information and references relating to Malaysian independence, see Roff, William, Origins of Malay Nationalism, Kuala Lumpur: University of Malaya Press, 1980; Means, Gordon P., Malaysian Politics, London: University of London Press, 1976. On statements made by British officials and other writers on Malayan independence as well as an extensive bibliography, see Yasin, Norhashimah (1996), Islamisation/Malaynisation: A Study on the Role of Islamic Law in the Economic Development of Malaysia 1969-1993, Kuala Lumpur: A.S. Noorden Publishers. This was her Ph.D thesis submitted to the University of Warwick, UK. 9 Mutalib, Muhammad Hussin, Islam and Ethnicity in Malay Politics, Oxford University Press, Singapore, 1990.

gain momentum all over the Muslim world. Although there was an increasing awareness about Islam and its worldview, the Federal government was not prepared to entertain any thoughts on an Islamic state. Following the first Prime Minister, the third Prime Minister, Tun Hussein Onn (1976-1981), made his pessimism about the idea of an Islamic state for Malaysia clear and reminded government officers to take heed of religious extremism. Section 2: Development in Malaysia: A Role For Religion?
While the sources of Al-Qur'an, hadith and Sunnah of the Prophet give us guidance, details must be deduced through the use of aql.... Islam gives us flexibility.... In Malaysia, our administration is not against Islam and takes into consideration the environment specific to Malaysia. Dr. Mahathir Mohamad, Prime Minister 36 AGM of UMNO, 27 Sept. 1985. There are many institutions and activities and services in the economy which do not carry Islamic labels and nomenclatures. They are no less important, from an Islamic point of view, than specific institutions with Islamic appellations....What is important in evaluating these institutions and activities is whether they serve the interests and needs of the ummah... to enhance the quality of life and well being of the ummah. Anwar Ibrahim Minister of Finance, July 1992

Malaysian Economic Development: From the Secular Phase to the 1980s In his 1968 article in the International Encyclopedia of Social Sciences, Daniel Lerner (1968) characterized modernization as a process in which less developed countries acquired the characteristics of developed countries. Among these characteristics was the diffusion of secular norms including personality transformation. The secular mind was seen as an important attitudinal ingredient in modernization, being rational and progressive as opposed to the irrationality of religious (and mythical/magical) predispositions. Von der Mehden (1986, p.12)10 succinctly summarizes the view prevalent in western scholarship as follows
In sum, then, modernization literature, particularly in the 1950s and 1960s, pictured a decline in religious values, attitudes and practices, and legitimacy as modernization proceeded in its inevitable forward progress. With this would come the weakening of the traditional, irrational, unscientific, or pre-scientific attitudes and behaviour that had permeated pre-modern society and the acceptance of modern foundations of reasoning.

When Malaysia achieved independence in 1957, the government under then Prime Minister Tunku Abdul Rahman generally continued to work within the framework set up by the British, a framework that was generally seen to be effective. Nevertheless, the world and scholarship has changed in the last three decades and has seen instead of a decline, a resurgence of religion, especially led by Islam. Haynes (1999) discusses the impact of religious resurgence in various
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Von der Mehden, Fred, Religion and Modernization in Southeast Asia, Syracuse University Press, 1986.

parts of the world in an era of globalization, and relates it to politics. Giving examples of the Christian liberation theology movements in Latin America, the Islamic movements in the Middle East and Indonesia, the Hindu resurgence in India and the Buddhist revival in Thailand and Burma, he posits the view shared by some that we are witnessing an un-secularization of the world (Weigel quoted in Huntingdon, 1993)11. This trend has not changed in the Muslim world. In certain Muslim countries like Malaysia, religious resurgence has also occurred in an era of tremendous economic growth and transformation. This period of sustained economic growth, reduction of poverty, diversification of the economy and improved social and infrastructural facilities has been termed the Asian Miracle by the World Bank (1994). Although the 1997-98 financial/economic/political crisis that hit Malaysia and much of East and Southeast Asia (and continues to plague some countries) called into question many aspects of the Asian Values-Development Model, the official incorporation of religious/moral values as a basis of economic development in the region in the last 30 years seems to question the modernization thesis. While personality transformation and science/scientific methods have, and are, being promoted, religion- in our case Islam- was used as an ingredient in the sought after personality and attitude transformation. This can be seen very clearly in the following quote from Dr. Mahathir Mohamad.
Religion is another established force with the Malays. No change, no plan and no ideology which runs counter to the religion of the Malays can succeed.... In fact, Islam must be upheld and even further propagated if success is to be assured.

Dr. Mahathir, The Malay Dilemma, (1970: p.104) There were some studies in the 1990s that tried to look at the relationship between Islam and economic development in Malaysia12. Wilsons (1998) study of the Islamic reforms, while providing a general description and analysis of developments in Malaysia, it is limited primarily to developments in the banking/financial sector and would have been more appropriately titled Islamic Banking and Finance in Malaysia. His conclusion, based mainly on the data of the growth and performance of Islamic banking and finance, is that while Malaysias economic success is a model for others, the specifically Islamic influence on it is marginal. Islam, he concluded, has not had a very great impact and effect on Malaysian economic development. However, ala Rodinson, he also states that there is no evidence to show that Islam has hindered economic development. 13While
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Huntingdon, Samuel, Clash of Civilizations, Foreign Affairs, 72, 1993. See Mehmet (1990) for a general overview of economic development and Islam, Choudhury (1992) for attempting to build an Islamic framework, Lawrence (1998) for his introduction of the phrases economic jihad and Malaysias corporate Islam model, Haneef (1994) who tried to develop an Islamic economic conceptual framework and evaluate economic policy prescriptions of Muslim political parties and Wilson (1998), who tried to evaluate the impact of Islamic finance reforms on the economic development of Malaysia. 13 This conclusion is also found in Von der Mehden (1986) in his study on religions in Southeast Asia, where he tries to analyze the impact of Islam represented by its pillars of prayer, fasting, zakat and hajj, on development. While his study provides some very interesting guidelines on developing indicators for

Wilsons conclusion may not be incorrect, the evidence he puts forward is limited to a rather narrow scope of Islamic economic thought and policy. In this context, Haneef (2001) pointed out that there is no development and utilization of a coherent, logical and consistent Islamic framework to effectively answer this question. Finding an Islamic dimension of economic development means looking at Islam not just as a set of rituals, or as an inherited culture, but as a basis for thought and action. Islam becomes also a worldview with an economic/development vision from which economic thought and policy framework proceed.14 However, notwithstanding the absence of such a framework, this paper argues that in order to help evaluate the role of Islam in Malaysias economic development, we have to go beyond finance data and even direct economic policies. Some important aspects of Islamic policy and administrative reforms in Malaysia that are very relevant to understand the developments in the economic sphere have to also be analyzed. These policies and developments have largely been ignored by most studies on Islam and Development in Malaysia. For this we turn to the 1980s to discuss the new era of Islamic reforms in Malaysia. The Years of Islamic Reforms: 1981-1998 Official contemporary writings place the genesis of Islamic economic institutions in Malaysia in the 1960s, with the establishment of Tabung Haji or Pilgrims Fund in 1963. However, the present writer is more inclined to view actual planned Islamic economic reforms as having started in 1981 when the Mahathir Administration came to power. Unlike its predecessors, and relating to the demands of the time, the Mahathir administration decided to utilize Islam as a positive ingredient in the development of the nation and its peoples, especially the Malays. The role of Islam, at the state level, went beyond ceremonial purposes. Political will to push through the subsequent reforms certainly was an important factor in the 1980s. This would be in line with the views of Chapra (2000), who viewed the future of any meaningful reform to begin with political will and change for the better. In March 1981, Dr. Mahathir (then Acting Prime Minister) announced that the government would be setting up an 'Islamic Consultative Body' (ICB) to ensure that national development programmes conformed to Islamic values. This committee, made up of Islamic experts in administration, law, economics, medicine, engineering, agriculture, sociology, Islamic philosophy and politics had the task of analyzing and evaluating the then policies and technology with the intention of modifying them to ensure that they were in line with Islamic values. The ICB was to discuss and deliberate on various issues concerning Islam and development and to put forward these proposals to the government for consideration. Looking at the aims and general scope of the ICB, it would give the impression that the Government was attempting some kind of 'sifting' or quality testing for all development
evaluating the role of religion in development, the restriction of Islam to just these four pillars does not capture the whole expanse of Islamic economic thought and policy. In a way, it is still in the secularreligion framework. 14 For an extensive analysis of the Islamic worldview, see al-Attas, Syed Muhammad Naquib, Prolegomena to the Metaphysics of Islam, International Institute of Islamic Thought and Civilization, Kuala Lumpur, 1996.

policies at the national level and seemed to indicate that the NEP was being Islamized or at least being injected with Islamic values. This would also imply that meeting the 'Islamic standard' was going to be the requirement of all policies, thus elevating Islam to a central role in policy formulation and decision making. Later in 1981, the government announced its Inculcation of Islamic Values (IIV) Policy, which was meant to cover government administration. Over the years, the government crystallized this policy and it became clear that it was meant to instill universal Islamic values which would enable the country to have an effective, strong, just and progressive administration. This was to create a dynamic work ethic which would increase productivity. The important values stressed were Trustworthiness, Responsibility, Sincerity, Dedication, Moderation, Diligence, Cleanliness, Discipline, Cooperation, Integrity and Thankfulness.15 Rather than imposing Islamic law or some other external aspects of Islam, the IIV policy was an attempt at improving individuals in their thinking, behaviour and value orientation. In this sense, Mahathirs views certainly are not neo-classical economic views that look at economics as an independent, objective discipline. Instead, culture (including values and attitudes) and religion play an important role in determining the success or failure of economic policies, something that Fukuyama (1995) refers to as social capital16. No attention has been paid by scholars to connect these developments to Malaysian economic development, preferring instead to focus on the developments in Islamic banking and finance. However, these value-policies are central in understanding the Malaysian attempt at modernization. The Need for Credible Islamic Leaders In order to convince the masses that the Federal Government was serious in its Islamic agenda and to challenge the opposition Islamic Party of Malaysia (PAS) Mahathir needed credible people in the party. Possibly one of the most important successes of Mahathir at the time was that he managed to convince Anwar Ibrahim, the then President of Angkatan Belia Islam Malaysia (ABIM), to join the government in 1982.17 Not only was Anwar instrumental in the Islamic initiatives of the Federal Government, he was also their main spokesperson, given the role of criticizing the oppositions inability at actually doing anything constructive. As we will show in the next section, this cooption of Anwar could even be seen as the single most important event in the early 1980s that provided the foundation of all future Islamic reforms in the next decade and a half. Within a few years, the initiatives undertaken by the government, and mainly carried by Anwar and his associates, managed to give Malaysia a credible position as a model
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See Panduan Penerapan Nilai-Nilai Islam (Inculcation of Islamic Values Guide), Prime Ministers Department, 1986 and Dasar-Dasar Baru kerajaan (Governments New Policies), Ministry of Information, 1986. 16 Francis Fukuyama (1995), Trust- The Social Virtues and the Creation of Prosperity, Penguin. 17 For greater analysis into this aspect of Islamic resurgence in Malaysia, see Chandra Muzaffar (1987), Islamic Resurgence in Malaysia, Fajar Bakti, Kuala Lumpur; Mutalib (1990), ibid.; David Camroux (1996), State Responses to Islamic Resurgence in Malaysia: Accommodation, Co-option and Confrontation, Asian Survey, Vol. XXXVI, No. 9 and M. Shukri Salleh (1999), Recent Trends in Islamic Revivalism in Malaysia, Studia Islamika, Vol. 6 No. 2.

Muslim nation internationally. The parting of ways between Mahathir and Anwar, leading to the sacking and subsequent imprisonment of the latter in 1998 proved disastrous for Malaysia and the Federal government, as far as its Islamic credentials were concerned. There was a huge backlash against the Federal government and especially in the UMNO.18 The Establishment of Islamic Institutions The establishment of Islamic institutions in the country had a much greater audience and a more ambitious aim. A. Islamic Economic/Financial Institutions As of the end of October 2008, the Islamic financial system in Malaysia was represented by 15 full-fledged Islamic banks (five being foreign, locally incorporated), an Islamic interbank money market (in January 1994); and 8 Takaful (Islamic insurance) operators offering more than 40 financial products. Islamic banking grew at the rate of 49% in terms of assets for the period 1995-1999, and has maintained its impressive record in the last 10 years too. The share of Islamic banking as a percentage of overall banking is about 13%. To complement the Islamic banking system, the capital market has also seen a rapid growth of Islamic debt securities and equity markets, with the Labuan Islamic Offshore Financial Centre being set up in 1990 and offering Islamic facilities since 2001. Takaful has seen an annual growth of about 68% over the period 1986-2000 but still commands only a very small percentage of the total market. Nevertheless, the efforts of the Malaysian government have been acknowledged as very central in providing a viable alternative for investors looking for Islamic facilities and investment opportunities. In the Financial Sector Masterplan of the nation, Islamic banking and Takaful is projected to capture 20% of the market share by the year 2010. 1. Interest Free Banking19
The setting-up of the Islamic Bank is not just symbolic, but an effort to ensure that the Islamic banking system could play a role in the modern economy. Dr. Mahathir Mohamad, 1983 On the opening of Bank Islam

The establishment of the Bank Islam Malaysia Berhad (BIMB) in 1983 was seen as a major leap forward in providing Muslims (and non-Muslims) with an alternative to conventional banking. Based on shari'ah principles, and under the supervision of a Shari'ah Regulatory Council, the bank replaced all interest based transactions with Islamic alternatives. After 25 years, the bank is still receiving good response from the Muslims and non-Muslims. The bank was basically funded by the Government in the beginning, although now the government owns only 13% of the bank, which was listed on the main board of the Kuala Lumpur Stock Exchange in 1992. In terms of performance, it has maintained an average standing among its competitors. It has
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Results in the 1999 election showed that more than 50% of the Malay Muslim voters voted for the opposition and not UMNO. Even from the perspective of total popular vote, the ruling coalition only managed to garner about 53% of support, although they retained more than a two thirds majority in parliament. Since then, the UMNO led government has managed to win back some support among the Malays but mostly from the nonMalays/Muslims since the events of September 11. 19 See www.bnm.gov.my for more details on the development of Islamic banking and finance in Malaysia.

opened up numerous branches all over the country and had for a decade, a monopoly as far as Islamic banking is concerned. Only in March 1993 did the government allow other commercial banks to open up interest-free counterspracticing what is known as Skim Perbankan Tanpa Faedah (interest-free banking). In 1997, a National Syariah Advisory Council on Islamic Banking and Takaful was established by the Central Bank of Malaysia and in October 1999, the second Islamic Bank, i.e. Bank Muamalat Malaysia Berhad, was established (with 40 branches nationwide). Today, there are 15 full-fledged Islamic banks, including 5 overseas banks and this has made the Islamic banking industry an important part of the Malaysian financial landscape. It is important to note that these developments in the banking sector have generally been welcomed by Muslims and have also been accepted by non-Muslims. As long as no attempt was made to force anyone to patronize the Islamic bank or the counters, non-Muslims seem to be rather open. The government has been very cautious in its efforts not to offend anyone. Also it may be noted that the gradual dual banking approach adopted by the Malaysian government is not like the revolutionary approach adopted in Iran, Pakistan and Sudan. The former seems to have proven to be a more sustainable approach. 2. Takaful (Islamic insurance) Operators. Under the auspices of the Islamic Consultative Body (ICB), Takaful Malaysia Berhad was set up in 1984 as a subsidiary of BIMB through the passing of the Takaful Act. As an alternative to conventional insurance companies, Takaful did not deal with the fixed 'no claims bonus' system. Instead, it introduced an arrangement similar to the one used by Bank Islam, i.e. returns on one's contribution to the Takaful fund, based on the principles of voluntary contribution, joint protection and profit-sharing. Together with Bank Islam, the Takaful company invested the contributions made by the participants in permitted areas, while the returns were paid back to the participants in the form of yearly profit. Takaful Malaysia has since been listed on the Kuala Lumpur Stock Exchange. Besides the BIMB, which owns about 75% of shares, other owners include the State Religious Councils/Baitulmal of Terengganu, Pahang and Negeri Sembilan (states in Malaysia). Based on the success of Takaful Malaysia, the government allowed the setting up of another company, Takaful National Berhad in 1999. To date, there are 8 Takaful operators registered in Malaysia but their market share is still only about 8%, indicating a huge potential for expansion. Tabung Haji Based on a paper by Royal Prof. Ungku Aziz in 1959, the Perbadanan Wang Simpanan Bakal-Bakal Haji (Pilgrims Savings Fund Corporation) was established in November 1962. Operations officially began in September 1963, focusing on providing an avenue for Muslims wanting to perform the Hajj to save their money without having to be involved with the interest based system. The functions were widened to include the administration and organization of Hajj activities for Malaysian pilgrims under the Lembaga Urusan dan Tabung Haji (LUTH) Act of

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1969 and, by August 1997, an amended act saw the Tabung Haji taking up a more corporate image and being involved in three core businesses i.e. savings, investment and hajj arrangements. Besides the Employees Provident Fund (EPF) and the Permodalan National Berhad (a national equity fund), Tabung Haji is one of the biggest savings/ investment institutions in the country, but one that has, from its inception, been shariah compliant. Its success earned it the Faisal Award for Islamic Economics in the late 1990s.20 4. Islamic Capital Market Since 1990, the Islamic Capital Market (ICM) in Malaysia has emerged as a significant area of growth and has also boosted the development of the Islamic funds management industry. Starting with 2 equity funds in 1993, as of end of 2003 there are 77 Islamic unit trust funds, comprising both equity and bond funds, with a net asset value of about RM6.8 billion or about 8% of the total NAV of the unit trust industry. For the period 1993-2003, Islamic unit trust funds have been growing at a compounded annual rate of 47% while the unit trust industry as a whole has grown at about 9.6%. These efforts were initially driven by the specific need to bring about effective and efficient mobilization of funds of Islamic banks, takaful as well as other Islamic institutions such as Tabung Haji, and enhance the liquidity management of these sectors. However, the ICM has since moved away from being seen as merely promoting faith based products to one that caters to the global market. In this regard, more than half of the units offered by Islamic unit trust funds are subscribed by non-Muslims. Malaysias and the worlds first sovereign sukuk (Islamic bonds) in 2002 received a truly international subscription of investors, 51% from the Middle East, 30% from Asia, 15% from Europe and 4% from the US. As in any maturing market, the success of Islamic financing will greatly depend on the ability of the capital market to play its role in meeting the ever increasing demand for Islamic financing and financial products. It is therefore imperative that standards of documentation, governance structure and practices, levels of transparency, disclosure, and the protection accorded to investors are benchmarked against existing international standards, best practices and codes. So far, the performance has been quite credible Yayasan Pembangunan Ekonomi Islam Malaysia (YPEIM) (Islamic Economic Development Foundation of Malaysia) YPEIM was established in 1976 but was reorganized and reactivated in 1984 under the initiative of the Federal government. The main objective of the Foundation was to collect voluntary funds from various Islamically permitted sources and to invest these funds into (permitted) projects and activities to provide economic assistance (employment and monetary) to Muslims and to promote human welfare in general. YPEIM combines the practice of amal jariah (donations/ charity) with that of
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5.

Unfortunately, in the wake of the Asian Financial Crisis in 1997 till a couple of years ago, the performance of Tabung Haji has deteriorated, not only in terms of profitability but also in questions relating to its investments and management. Although it is not possible at this moment to make any conclusions, it seems as if even Islamic institutions are not free from human weaknesses. It is still too early to say how these institutions will perform in the present financial turmoil.

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investment and efficient management under the guidelines of the shari'ah. The welfare activities are intended to promote brotherhood, altruism and cooperation while the investment activities would provide employment and generate economic activity to cater to the material needs of society. It has, since 1993, undertaken many projects dealing with Islamic pawn-shops or Al-Rahnu and the rural development scheme Amanah Ikhtiar Malaysia, modeled after the Grameen Bank of Bangladesh. 6. Zakat and the Restructuring of the Baitul Mal Zakat - which is a fundamental tenet in Islam- basically requires those who have more than a stipulated amount of wealth to give to those who are entitled. Being one of the pillars of the religion, zakat collection and disbursement have been a regular feature of Malay society and culture since the times of the Melaka Sultanate in the 15th century. Studies on the institution of zakat in Malaysia have shown that various aspects including the collection, disbursement, coordination and management of zakat funds were in need of reorganization. Under the auspices of the ICB/Prime Minister's department, a committee to study the zakat institution in Malaysia was formed in the mid-1980s and it comprised scholars, administrators and others who were directly involved with the aim of reorganizing and upgrading the relevant bodies in charge. Zakat collection centres have been in operation since 1990. Similarly, the institution of Baitul Mal has been under scrutiny. Since, in Malaysia, all matters relating to Islam come under the jurisdiction of the State authorities and the Sultan or state ruler, there has been a very uneven development of this institution from state to state. In some states like the Federal Territory of Kuala Lumpur and Selangor, there have been major reorganization efforts of management, utilizing modern management practices and knowledge of finance and investment to create more professionally run organizations. In addition to the above, other institutions established in Malaysia include Islamic cooperatives and Islamic alternatives to pawnshops. In early 1992, two states introduced Islamic alternatives to pawnshops i.e. Terengganu and the PAS-led Kelantan, both predominantly Malay states and economically less developed than other states in the federation. In addition, the is also a Shariah compliant stock index called the Kuala Lumpur Shariah index (KLSI) representing shariah approved stocks according to criteria set by the Shariah Panel of the Securities Commission. B. Non-Economic/Financial Institutions While economic/financial institutions are a very large component of the Islamic reforms undertaken in the last 25 years, there have also been very important developments in supporting areas, especially in the education and legal spheres. 1. Educational/Research Institutions The first was the establishment of the International Islamic University Malaysia in 1983. Although originally envisioned as an institution funded by the international Islamic community, the IIUM has almost exclusively been backed by the

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government of Malaysia. To date, the IIUM offers an integrated curriculum in courses such as economics, law, Islamic revealed knowledge, education, human/social sciences, engineering, architecture, medicine and basic sciences, taught in English (with some courses in Arabic). The underlying mission of the University is to produce graduates who are not only professionally competent, but imbued with good values, from an Islamic perspective. Since its first graduates in 1987, the IIUM has so far produced more than 20,000 graduates who have joined both the public and private sectors. In addition, the university is involved in providing diplomas and other short courses to Qadis (Shari'ah court judges), lawyers, businessmen and members of the public on various aspects of Islam related to their own fields. In 1987, through the IIUM, the government set up the International Institute of Islamic Thought and Civilization (ISTAC), under the Directorship of Malaysian scholar Syed Muhammad Naquib al-Attas, with the objectives of promoting and undertaking more serious research in the fields of Islamic thought and civilization. 21 In 1992, the Institute of Islamic Understanding (IKIM) was set up under the auspices of the Prime Minister's Department with the objective of providing a proper understanding of Islam, its principles and values to all Malaysians, especially the non-Muslims. In the mid 1990s, the government also set up the Islamic University College of Malaysia (Kolej Universiti Islam Malaysia), which was recently renamed Islamic Science University of Malaysia (Universiti Sains Islam Malaysia), to provide more opportunities for students, especially those coming from religious secondary schools, to pursue their higher education in all professional areas by combining knowledge from both revealed and human sources of knowledge.22 2. Legal Reforms While Malaysia was interpreted to be a secular state in the time of the previous three Prime Ministers, there has been a clear indication that Dr. Mahathir saw a very positive role for Islam in Malaysia, especially for the Malays. Numerous scholars have put forward their views regarding the status of Islam and its applicability in state affairs. Besides the IIV policy and the institutions discussed earlier, there have been serious attempts to upgrade the status and scope of Islamic law in Malaysia. From a constitutional perspective, there have been scholars who have tried to put
21

For both the IIUM and ISTAC, former Deputy Prime Minister, Anwar Ibrahim played a pivotal role as President from 1988-1998. In the aftermath of his sacking and subsequent arrest and imprisonment, both these institutions, as well as all other institutions of higher learning, have been targeted by the government as they were seen to be too anti-establishment. Stricter controls and even a signed declaration of loyalty by staff and students were demanded by the government to curb any perceived (opposition) political biases. On the surface, these actions seem to have produced the desired results. 22 Although not discussed, the rise of more Islamic institutions of higher learning, whether there are the public institutions or the many private colleges, must be seen as part of the increase in the number of modern Islamic religious schools, set up by both the Federal government as well as the state level Islamic schools. These schools were mainly created when the Ministry of Education underwent a major reform in curriculum and introduced the integrated curriculum at both the primary and secondary school levels. This change occurred during the time when Anwar Ibrahim was the Minister of Education in the late 1980s.

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forward the view that nothing in the constitution precludes having Islamic law as a valid element in the Malaysian legal system. Ahmad Ibrahim (1989)23 argued that since the Federal constitution states that 'Islam is the religion of the Federation' (Art. 3 (1)), reforms should be carried out to enable Muslims to follow Islamic law in its entirety, albeit gradually. To those who argue that this would contradict the Federal constitution (Art. 4), which puts the constitution as the supreme law of the country and any law that contradicts the constitution is null and void, he interprets this to mean only 'written law and laws after independence'. Since Islamic law was not written but applied, and since it was the law of the land before independence (even before colonial rule), then Islamic law is not bound by Art. 4, except in matters pertaining to its administration and codification. Seen in this perspective Art. 12 (2)- which states that the government can establish and maintain Islamic institutions (financially as well)- is an indication that Islamic reforms are possible and within the power of the government of the day. In this light, various acts and legislations have been amended to enable the Islamic institutions to function legally24. For example, the Banking and Financial Institutions Act had to be amended and an Islamic Banking Act had to be introduced to enable Islamic banks to operate. Although these may seem to be simple matters, the fact that a large number of members of Parliament are non-Muslim indicates the political will and agreement and support from non-Muslims are needed to get these amendments passed. The status of Shari'ah courts have also been upgraded and are being reorganized with better qualified personnel. Attempts are being made to widen the jurisdiction of the Shari'ah courts but this is being done very cautiously. In 1988, an amendment was made to Article 121 of the Federal Constitution. This amendment- known as Article 121 (1A)- provides that civil courts shall have no jurisdiction over any matter within the jurisdiction of Shariah courts to avoid future conflicts between decisions of the two courts. Despite all caution, these legal reforms do create debate and concern among some parties who worry that their perception of the secular nature of the nation is slowly being eroded. The Crisis Years and the Renewed Attempt of Islamic Reforms
Islam Hadari is an approach that emphasizes development, which is entirely consistent with the tenets of Islam and is focused on enhancing the quality of lifeby way of the mastery of knowledge and the development of the individual and the nation; a dynamic economic, trading and financial system; an integrated and balanced development that creates knowledgeable and pious people who are honest, trustworthy and are prepared to take on global challenges. Abdullah Ahmad Badawi UMNO 55th General Assembly, 2004.

The events of 1998 which saw the parting of ways between Dr. Mahathir Mohamad and Anwar Ibrahim, and the subsequent sacking and imprisonment of the latter, had a profound effect on the status and credibility of the UMNO-led government as the initiator and implementor of Islamic reforms in Malaysia, which had, for almost two decades,
23

Ahmad Ibrahim (1989), The Principles of an Islamic Constitution and the Constitution of Malaysia: A Comparative Analysis, paper presented at symposium Towards A Better Understanding of the Shariah, IIUM, Kuala Lumpur. 24 See Yassin (1996) for a detail discussion of all these legal reforms.

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been seen as the most successful promoter of a modern and progressive form of Islamically inspired development. While there was some loss of credibility in the international scene, this credibility loss domestically was more serious. During the 1999 general election, despite securing a two-thirds majority in Parliament, the UMNO-led coalition experienced its worst showing in terms of popular vote, especially among the Malay/Muslim voters.25Islamic elements in the administration, especially those perceived to be aligned to Anwar, were purged or chose to leave, many to join the opposition. The backlash was even felt in the civil service, where due to the perceived loss of support, the Federal government had to resort to forcing all civil servants to sign a pledge of loyalty to the government. Ironically, it was Dr. Mahathirs own Inculcation of Islamic Values policy and the pro-Islam reforms that led many Muslims, including civil servants, to judge Dr. Mahathirs actions as being improper and unjust. In October 2003, Dr. Mahathir retired from office after 22 years at the helm of political power and was succeeded by Abdullah Ahmad Badawi. In April 2004, general elections were held and this time, the UMNO-led government marched to its biggest win ever in modern Malaysian history, regaining back its popular Malay support.26In addition to a few other policy announcements relating to governance, one of Abdullahs earliest policy initiatives was the introduction of Islam Hadhari, a new approach to returning Muslims to the true teachings of Islam, one that promoted, among other things, peace, progress and prosperity for all27. This new approach of presenting the progressive nature of Islam is based on 10 core principles, namely 1. Faith and Piety in Allah 2. A Just and Trustworthy Government 3. A Free and Independent People 4. A Vigorous Pursuit and Mastery of Knowledge 5. Balanced and Comprehensive Economic Development 6. A Good Quality of Life for the People 7. The Protection of Rights of Minority Groups and Women 8. Cultural and Moral Integrity 9. The Safeguarding of Natural Resources and the Environment 10. Strong Defence Capabilities

25

All levels and ages of Malay society were almost shocked at the events leading up to the arrest of Anwar Ibrahim, the sensational arrest itself (where an elite police squad was used to storm his residence), the subsequent mistreatment of the former Deputy Prime Minister while in police custody and the entire court trials that occupied the headlines for months. UMNO was the main loser in terms of popular votes and PAS the main benefactor. 26 After rumours had been circulating for months, in September 2004, Anwar was released when the Federal court overturned earlier judicial decisions made. This gesture was seen by many analysts as being possible only with the clearance from Prime Minister Badawi and one of the reasons why the UMNO-led leadership had managed to regain some of the lost ground in terms of Malay-Muslim support, shown in the 2004 national election results. 27 Islam Hadhari Approach- Towards a Progressive Islamic Civilization, Selected Speeches by Dato Seri Abdullah Ahmad Badawi, Department of Islamic Development Malaysia, Prime Ministers Department, 2007.

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Besides Abdullahs need to introduce his own agenda, one could also see the importance of re-emphasizing the moderate, progressive Islam that Malaysia was championing and mentioned by its proponents more than a decade earlier. This was even more important after the events of September 11, 2001 which saw a marked rise in Islamophobia all over the world. The need to reiterate the Malaysian approach to utilizing Islam and Islamic values positively in a pluralist nation was also very important. To an extent, these efforts have been successful, especially during Malaysias period as the Chair of the OIC. Domestically, the report card has still not been finalized, although some Islamic credibility was salvaged between 2003 and 2008. Just as in the case of the 1980s and 1990s, what is still lacking is the push for a greater emphasis on building the conceptual frameworks on which the Islam Hadhari approach is to be connected to development (principle number 5). However, looking at the 10 core principles, they would seem to be more comprehensive than the values that were being emphasized in the IIV policy introduced two decades earlier, hence, having the potential to be more comprehensive and sustainable if developed and implemented correctly. Sharing some similarities with the Inculcation of Islamic Values policy during the Mahathir administration, the Islam Hadhari approach also requires a positive change in mindset of the Malays, an understanding of the Islamic worldview and a realization that everyone has to work hard to realize his or her role as abd (servant) of God and khalifah (vicegerent) on earth. Any attempt to change the Malay required ijtihad and jihad (in its wider meaning) and the pursuit of itqan (quality) in all that was done. However, the new approach seems to go beyond the IIV as it does not limit itself to the civil service per se, or to values that are primarily sought for improving the administrative performance of the civil service. It has, in theory, a wider scope and is put forward as the policy framework to further enhance the development of the country as a whole and for all citizens.28
Malaysia is an Islamic countryto show by example that an Islamic country such as ours can be modern and progressive and govern all people fairly and justly. We call this approach Islam Hadhari We have defined it as a comprehensive approach to the development of mankind, society and country based on the perspective of Islamic teachings and Islamic civilization. Abdullah Ahmad Badawi United Nations University, Tokyo 26 May 2006.

Section 3: Islam and Economic Development: Analysis of Academic Scholarship and Events in Malaysia
It is necessary to first consider whether there is a distinctive Islamic model of economic development. Have Malaysias Muslim political leadership applied such a model, consciously or unconsciously? (Wilson, 1998, p. 260)

More than 10 years ago, Nasr (1989)29 criticized the developments in Islamization efforts as being dominated by political expediency and Islamic economic literature, as lacking a philosophy (and, we would add, methodology) that is consistent with the Islamic world28 29

P. xv in Introduction, Islam Hadhari Approach (2007). Nasr, Seyyed Vali Reza, Towards a Philosophy of Islamic Economics, Hamdard Islamicus, Vol. XII No. 4.

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view and its economic vision. Islamic economics, as any other kind of economics, needs a philosophical base. This philosophy, is a necessary but not sufficient condition for the survival of the discipline. The philosophy needs to be translated into theory and then into practice. It must be understood, developed, practiced and evaluated so that it is able to function in a dynamic setting. M. Umer Chapra, one of the leading proponents of contemporary Islamic economics in his book The Future of Economics:An Islamic Perspective (Islamic Foundation, 2000), echoes the views of many others who talk of the need for more empirical work so that Islamic economics can be put into practice. He laments that Islamic economics has not been able to progress as desired because, among other things, we continue to talk about the ideals, features and superiority of Islamic economics but have not showed any results. His point is well taken. However, it is also a case of the inability to understand, develop and evaluate Islamic economic, using an Islamic framework that has stopped us from practicing any genuine form of Islamic economics. If we do not have a coherent framework and understanding of legitimate Islamic positions, how can we evaluate the practice as being Islamic or otherwise. While Chapra calls for Islamic economists to move ahead to the arena of empirical work and practice, it is also very important that this moving ahead keep the philosophical foundations intact and develops according to an Islamic methodology. Contrary to what is sometimes claimed, one major deficiency in contemporary Islamic economics is that there has been too much interest in downstream issues such as the creation of Islamic financial instruments, without sufficient understanding of upstream issues and ultimately the Islamic economic vision from which these issues proceed. In this sense, anyone who is seriously hoping to develop an alternative to conventional economics needs to study and master a very much wider scope of knowledge. An authentic alternative will never materialize if we continue to do downstream patchwork, without a proper upstream conceptual framework. While having an appropriate conceptual framework is a necessary condition to claiming Islamic credentials, it is still not sufficient to develop Islamic economics, banking and finance. The framework needs to be translated into policies and, to be implemented. Islamic economics has not only to describe and analyze economic problems but also prescribe appropriate policies and solutions to address these problems. None of these stages of economic practice is value free. Debates on facts, analysis and policy prescription are a normal part of economics. Policy formulation and implementation is clearly an even more complex and varied aspect of economics than dealing with the conceptual framework. In policy formulation, one would have to include the geographical, environmental, historical and cultural dimensions of the society concerned. Can Islam Contribute to the Economic Development of Malaysia? We have seen how the early Malaysian leaders answered this question in the negative. This was reflective of their times, when the modernization thesis had at its core the process of secularization. We have also seen how leaders in the 1980s, due to internal and external factors, changed the way religion- in this case Islam- was viewed. While some

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Muslims (Malays) are satisfied with the progress so far, others are not. Some in the latter group, feel that not enough is being done in the name of Islam, while other more secular oriented Muslims would see the efforts of the last two decades as being too extreme. Non-Muslims generally would either be wary or outright worried at the developments. If this is the case, how can there possibly be a role to play for Islam in Malaysian development? This requires a new economic agenda in which religion, in our case Islam, is presented as a more just and equitable basis on which to build economic prosperity. While many see this as not viable, the present writer is optimistic, provided certain steps are taken. There is no reason why an economic policy framework that is based on or inspired by religious values cannot be more acceptable than an economic policy that is based on ethnic lines. This is especially so if the religious based economic policy framework can be shown to be more just and equitable to all Malaysian citizens, irrespective of ethnicity, while at the same time maintaining the constitutional provisions to help the Malays and other indigenous peoples. It is generally accepted that the eradication of poverty sub-goal of the NEP and post NEP eras has been relatively successful. The idea of helping the poor would not raise dissatisfaction among any group, more so when the goal is implemented irrespective of race. This goal would also be a policy target in an Islamic economic system. However, it is the second sub-goal of the NEP that has created more debate and discussion, i.e. restructuring of society. Even in this, as figures show, the NEP has succeeded to a certain degree. However, one of the more common complaints is with the implementation of the various policies. Accusations that these policies have been abused and misused to create a wealthy upper and upper middle class of Malays, while still leaving behind many poor Malays, proves to be a difficult point to deny since undisputed figures of GINI coefficients show that the distribution of income and wealth in Malaysia has worsened over the years, especially among the Malays. This has created dissatisfaction not only among the Malays, but non-Malays as well, who cannot understand why those who are economically capable and able still need to be given assistance and subsidies, in the name of equity based on ethnicity. It is in this issue that an Islamic position on justice and equity would be more acceptable in the Malaysian context. Islamic injunctions would certainly require assistance to be given to those who are economically weak, irrespective of race. Those who are economically capable, irrespective of race, would be expected to help the former. While the constitutional provisions would still maintain some special privileges for the Malays and other indigenous peoples based on their indigenous status, the main improvement of a religious based economic framework will be that assistance will be awarded based on need and merit, rather than race. Even Malays, provided they are imbued with Islamic values and understanding of their religion, would agree with this basic point. The question is, will it be possible to have the religious factor overrule the ethnic factor in Malaysian politics and whether this would be preferable to Malaysians. In fact, the religion/ethnicity debate is not one that has received sufficient attention in Malaysian scholarship, maybe because of its potential sensitivities. However, it needs to be

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discussed. The present writer is of the opinion that while Islamic reforms in terms of laws relating to personal freedoms and criminal aspects are very sensitive and would get stiff opposition, Islamic/religious reforms in the economic sphere have not, and should not be opposed, especially if it can be shown to be good for economic development. So far, the Islamic economic reforms have been relatively, positive. The fact that the present administration under Prime Minister Badawi has chosen to introduce its Islam Hadhari approach and to give it an ostensibly important position in the development policy framework of the government, shows that the present administration is aware that religion, in this case Islam, as understood as having an all encompassing scope, is here to stay in Malaysian development. Getting all Malaysians to agree to this is where the interface of politics and economics comes in. As the Mahathir administration was able to accomplish this relatively successfully, there is no reason why the present administration cannot, if it takes certain positive steps. Conclusion For any successful attempt at Islamic reforms, three major ingredients are needed: political will (in the form of government policies), establishing institutions and having credible people to carry out the reforms. The Malaysian case certainly had all three. Vali Nasr (2001) views the Islamization period in Malaysia (and Pakistan) as lasting about 2 decades, i.e. from 1979/80 to1997. To him, the Islamic agenda redefined statesociety relations and further strengthened the role and position of the State as an active player vis--vis the Islamist challenge to the mainly secular state of post-colonial Malaysia. He sees the reforms not so much as being inspired by Islamic ideals per se, but by state pragmatism for enhancing state formation. By various measures, the Islamic reforms did assist the state in economic growth and development although as we have discussed earlier, the role and contribution of Islam per se is still being debated and yet to be measured. While these reforms made the state larger and more domineering over society, they have also created conflicts between the Islamist movements and within the ruling party. Hence the tensions between ethnic and religious factors in Malay society were brought to the fore when these fault lines developed and could not be sustained. Numerous Islamic institutions, both economic and non-economic, were established during the two decades, and continue to be established as main agents of implementing the policy reforms put forward. As stated by Nasr, it was the alliance between Mahathir and Anwar that had kept Islamism under state control. The end of the alliance created a chasm between the business elite and pro-Islamist forces in the ruling party, and to a certain extent, the nationalist forces in the party gained control. While there were indications that the secular orientation of the ruling party may be set to dominate state policies, Prime Minister Badawi launched his Islam Hadhari programme. However, whether it will have the same positive impact on Malaysian economic development in the years to come will depend on how it is developed, especially since it is claimed that the approach is moving into its second stage, i.e. of implementation30.

30

See foreword by Dato Dr. Abdullah Md. Zin, in Islam HadariApproach (2007).

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Two fundamental measures may need to be undertaken if this implementation is to succeed. First, the setting up of an Islamic Consultative Body or, better still, a Department of Islamic Economic Policy Formulation, at the Economic Planning Unit or directly under the Prime Ministers Department that will be tasked to help formulate and develop the framework and policies that would represent an Islamic position and to advise on the institutional developments. This consultative body/department would also have to be represented at the various states to ensure that policies are also implemented at the state levels. This seems to have been done a few weeks ago when we were informed that an Islamic Consultative Council was being established by the Prime Ministers Department. Details of this Council are still not clear and needs further investigation. The second fundamental measure that may need to be taken is to co-opt those who represent an Islamic agenda outside the state apparatus or form another alliance with them as was done by the Mahathir Administration with Anwar Ibrahim and through the latter, with Islamic organizations at that time. This would help give added credibility to any efforts to promote an Islamic agenda to the masses. Whether this can be achieved depends a great deal on the political will of the present government. It will also depend on whether those who talk positively about the role of religion in economic development are willing to go beyond political factors, including narrow party politics, to a serious national agenda that can continue to show Malaysians, and the world, that Malaysia is truly a model for emulation. The most recent events in UMNO, which has seen Prime Minister Badawi announce that he will step down in March 2009, ostensibly to strengthen UMNO and the Federal government after the March 2008 political tsunami, may be more complex than thought of as far as the Islamic agenda is concerned. This will depend upon the credentials of whoever takes over from the current Prime Minister, who despite his shortcomings, was accepted as a figure who had Islamic credentials. At the time this article was being written, it seems that the successor to the Prime Minister will be his Deputy, Najib Razak. As far as Islamic credentials go, the new administration will be even more hard-pressed to convince observers and Muslims that it will continue to give attention to Islamic reforms.31 This may make the need to seek new alliances in a future Malaysia very interesting and challenging. The only thing one can be quite sure of is that there is going to be much more interest in the relationship between religion, in our case Islam, and economic development in Malaysia in the coming years.

Select Bibliography
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However, this time the UMNO led Federal government has been considerably weakened by the results of the March 2008 general election, where about 50% of the population voted for the opposition parties, led by no other than Anwar Ibrahim. In a recent by election held in August 2008, Anwar won his old Parliamentary seat with a huge majority, despite the might of the federal government machinery and huge monetary and media resources used. It seems that Anwar and the Islamic Party of Malaysia (PAS) are now the key to any future serious attempt to put forward an Islamic reform agenda in Malaysia, as we move into the second half of independent Malaysias first century.

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