Many emerging markets and developingeconomies (EMDEs) face challenges in developing a vibrantdomestic bond market. Only a few have developed such marketsto a level of full maturity as Malaysia has. Although theoverall size of most domestic corporate bond markets inEMDEs (in terms of percentage to GDP) remains small, theMalaysian capital market is one of the most well-developedamong its neighbors and countries of comparable size andcharacteristics. The IMF’s Financial Market Index, abroad-based index to measure depth, ease of access, andefficiency of financial markets (IMF 2016), ranks theMalaysian financial market fifth in Asia after Hong KongSAR, China, Japan, the Republic of Korea, and Singapore.According to this index, Malaysia’s debt market, which iscomposed of corporate bonds and sukuk, is significantly moredeveloped than those of comparable EMDEs such as Chile andTurkey. This report primarily focuses on the development ofMalaysia’s local bond market as a source of long-term localcurrency (LCY) financing. It aims to extract the key lessonsthat can benefit policy makers as well as stakeholders inboth the public and private sectors. This report validatesthe worth of the building blocks many use for capital marketdevelopment, as well as the fundamental principles andforces that have shaped and sustained the growth ofMalaysia’s debt capital market. Malaysia’s ability todevelop specific segments of the debt capital market can bebest demonstrated through two specific cases: the domesticdebt capital market has played a vital role in financingMalaysia’s infrastructure, and Malaysia has played asignificant role as an Islamic finance center.
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