It has been reported that the Malaysian Prime Minister Najib Razak unveiled fresh plans to liberalise the country’s financial sector in a bid to develop it as an international Islamic hub.

"The financial system will have a key role in spurring new areas of growth, and facilitating our economic transformation," he said in remarks contained in a report by Bank Negara.

Under the 10-year programme, the sector is expected to expand 11 per cent annually between 2011 to 2020 and add another 56,000 jobs to the current 144,000.The report, entitled "Financial Sector Blueprint — strengthening our future", forecasts Islamic financing grow to account for 40 per cent of total financing in 2020 from 29 per cent last year.

"The Malaysian financial markets will grow in breadth and maturity, and become an important gateway to the ASEAN markets, while in Islamic finance" Malaysia will position itself as the leading international centre.

The nation’s banks will continue to expand in Southeast Asia, especially in Islamic finance, to support Malaysian businesses to boost cross border trade and investment, it said.

Najib hopes the financial sector will help realise his vision of transforming Malaysia into a developed economy by 2020. The target is to double income per capita to RM48,000 (US$16,000) in 10 years.His administration has already promised major infrastructure projects and financial market liberalisation to attract foreign investment and boost growth, but critics say the results have been limited.

Among the reforms introduced are new instruments for risk management, more efficient clearing and settlements of cross-border trade and investment and making transactions more efficient.

Yeah Kim Leng, chief economist with financial research firm RAM Holdings, said the plan aimed to develop global competitive financial institutions and channel excess domestic savings into sustainable investments.

"Failure (to do that) will result in slower economic growth as well as a less dynamic economy," he told AFP.The services sector is the main driver of the economy, accounting for 55 per cent of gross domestic product and financial services is one of the leading sub-sectors.

To bolster the sector including Islamic finance, the central bank said Malaysia will continue to roll out elements such as conducive tax environment and liberal foreign exchange administration policies.The central bank recommended the issuance of new Islamic banking licences and new takaful — insurance — licences to enable institutions to provide coverage to serve higher value-added economic activities.

Islamic banking fuses principles of Islamic law, known as Sharia, and modern banking methods. Islamic funds are banned from investing in companies associated with tobacco, alcohol or gambling.

Sharia-based finance also bans interest, which is seen as usury, and risks are shared between the creditor and borrower.Malaysia has 16 locally incorporated foreign banks, including HSBC and Citibank, and four foreign Islamic banking operators including Al Rajhi Banking & Investment Corporation and Deutsche Bank.

The previous 10-year plan was announced in 2001 where the country saw banking consolidation in the aftermath of the Asian financial crisis.