The rise of Islamic finance in Singapore

SINGAPORE'S strength in conventional financing and capital markets can be adapted to meet the needs of Islamic banking, said Monetary Authority of Singapore (MAS) deputy managing director Jacqueline Loh yesterday.

Ms Loh told 500 Islamic finance industry players and regulators at a conference: "Islamic banking assets in Singapore have grown by 73 per cent since 2010 and are increasingly cross-border in nature."

She added that conventional finance and Islamic banking are similarly cross-border in nature.

Islamic capital-market activities in Singapore have taken off, with 31 sukuk issuances over the past five years.

Sukuk refers to the Islamic equivalent of bonds. They adhere to Islamic laws, which prohibit charging or payment of interest.

Ms Loh said sukuks are ideal for funding infrastructure projects and would complement work by Singapore as they are asset-backed and can involve more capital-market participants.

"We have more sukuk issuances than other conventional jurisdictions, with total outstanding issuance reaching a high of $3.8 billion in 2014, compared to $440 million in 2009," said Ms Loh, who was speaking at the 6th Annual World Islamic Banking Conference Asia summit held at the Pan Pacific Singapore Hotel.

Sukuks could fund some of Asia's infrastructure needs, given the growing pool of Islamic investors across the Middle East and South-east Asia.

The Asian Development Bank and the Islamic Development Bank (IDB) have been cooperating to tap on Islamic financing solutions such as the Islamic Infrastructure Fund and the International Islamic Liquidity Management Corporation for member countries in the two regions.

There is also a potential tie-up between the IDB and the planned Asian Infrastructure Investment Bank.

In 2009, MAS created a sukuk facility to provide regulatory assets for banks undertaking Islamic finance activity. It remains the only conventional central bank to have done so.

"There have been eight issuances to date totalling $600 million, supported by robust demand," said Ms Loh, adding that the latest issuance, in November last year, was the largest yet.

MAS is also working with the industry and other government agencies to establish sukuk regulatory and tax regimes.

Mr Saeed Abdulla Al Hamiz, assistant governor (banking supervision) of the United Arab Emirates' central bank, said the regulatory authorities have to address emerging issues to facilitate the globalisation of Islamic finance.

Islamic banking and financial institutions must ensure that products and services comply with Islamic laws before and after launch to avoid disputes. An effective governance framework such as this should be done by developing greater knowledge and expertise.

He noted that some countries still lack qualified scholars in the Islamic financial industry.

"Universities and higher education institutions in collaboration with market players are encouraged to offer courses or training programmes, which will provide the necessary knowledge, expertise and experience for the industry," said Mr Al Hamiz.

Mr Tajuddin Atan, chief executive officer of Bursa Malaysia, is optimistic about Islamic finance in ASEAN.

"It is expected to almost double by 2018 to bridge the demand for Islamic finance and to support the mobilisation of funds in South-east Asia," he said.

This will lead to the issue "of product innovation to preserve and grow the wealth of the Asian and ASEAN population".

The conference, which ends today, is exploring new growth areas in Islamic financing and strengthening economic relations between Asia and the Middle East.

fabkoh@sph.com.sg

This article was first published on June 4, 2015.
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