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| NEWS ARCHIVES | | | | Islamic Finance Part 2 | | 27 Jan 2010 | | | |
There have been some concerns that the center of Islamic banking is moving away from South-East Asia to the Middle East.
This despite Malaysia pioneering the impetus for Islamic finance, and Indonesia being home to the world's largest Muslim population.
Is the opportunity to remain dominant in this sector slipping away from the region?
How does Islamic finance work in the region and here in Singapore?
Devika Misra finds out in this second and concluding part of her series on Islamic Finance.
Cities around the world have been vying with each other to be the center of Islamic finance.
Dubai, Bahrain, even London has positioned itself as the global hub of Islamic finance.
But some experts say it is in fact still right here in the region.
Daud Vicary Abdullah has been in finance and consulting for more than thirty five years and has focussed exclusively on Islamic finance since 2002.
"I think that Malaysia is till probably recognised as the global leader in islamic finance. It has the most complete system and you can check with the Bahrainis and Saudis, they would agree. Malaysia with strong government backing kicked off an initiative and set up Bank islam. In the GCC they followed, they've grown and Malaysia has responded. It still has the largest capital raising market for Islamic funds in the world, it still has the largest penetration of Islamic finance in the retail world and with the MIFC initiative is looking at globalising or at least regionalising as a center. The gulf is flexing its muscles much more but Malaysia still has built significant infrastructure for an Islamic system that runs in parallel very successfully with a conventional system."
While the two systems do run in parallel in the region, Mr Abdullah says that the growth is in islamic finance.
"The penetration in Malaysia is twenty percent of the overall banking market, more than sixty percent of the capital market is Islamic, Indonesia just successfully launched its third national sukok which was ten times over subscribed, they're rationalising the banking systems and the new licenses will only be granted based on being an Islamic bank. Brunei with its investment capability is also turning to Islamic finance and theres also significant interest in Thailand and Vietnam primarily looking at foreign direct investment which would be sharia compliant looking for investment coming in from the GCC and we're also starting to see growth in Japan, Korea and most recently China."
Singapore however has a much smaller Muslim population.
Because the two systems run in parallel here, it is sometimes hard to distinguish the difference.
Most conventional banks have an Islamic arm.
Keon Chee is with the Heritage Trust group, independent trust and fiduciary services company.
"The form of it in terms of cash flows may look very similar and a good reason for that is because the Islamic finance industry has to bench mark itself against the conventional and in a competitive way so again the form is very similar in cash flows otherwise no ones going to go to an Islamic bank. However the substance of it is very different because contractual agreements are very different."
Retail banking options on offer are limited.
"In Singapore if you want to buy insurance there are a few companies that sell insurance, Takaful which is Islamic insurance such as HSBC, such as NTUC and UOI. If you want to get into investing you can buy an exchange traded fund based on sharia concept as well as mutual funds and unit trusts based on sharia concepts so it is not broad based yet. However we are starting to see products."
But there are other areas here Mr Abdullah points to that can leverage off this growth in Islamic finance.
"On the retail front you don't have a large Muslim population so theres a business decision to be made how aggressively you go after that but from an investment banking project financing asset management stand point Singapore is a major global center and if its looking to attract and invest funds from the GCC which is where the liquidity is, the Gulf, then theres a huge opportunity here for Singapore to base a lot of its asset management products and offerings on the basis of Sharia compliance. In addition if Singapore companies are looking at getting investors or looking for funding or financing the surplus liquidity is coming from Islamic states at the moment in the gulf. Singapore is very business focussed and thats where the business of Islamic finance is going to grow here."
Daud Vicary Abdullah and Keon Chee have co-authored a new book, "Islamic Finance Why It Makes Sense, understanding its principles and Practices.
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