The city-state is the only non-Muslim majority country among the top 15 countries for Islamic finance, says MAS MD Ravi Menon.
By Kevin Lim, Channel NewsAsia, 3 Jun 2014
By Kevin Lim, Channel NewsAsia, 3 Jun 2014
"Singapore is the only non-Muslim majority country among the top 15 countries for Islamic finance," MAS Managing Director Ravi Menon said at the opening of the 5th World Islamic Banking Conference Asia Summit that is being held in the city-state.
"More funds continue to be established here, to meet demand from clients in Asia as well as from the Middle East, while several corporations have established sukuk programmes in Singapore to tap the market over the next few years," he added.
Sukuks are bond-like structures that comply with Islamic investment principles, which prohibit the charging or paying of interest.
Mr Toby O'Connor, the CEO of Islamic Bank of Asia said: "There is a lot of liquidity in the conventional space that the new Islamic products are competing with, but it's a huge opportunity. When you look at the wealth management space, there's a lot of liquidity coming into Singapore, a portion of that will go to Islamic finance, (and) when you look at sukuk, we've seen a number of issuances, programmes being set up".
Syed Abdull Aziz Syed Kechik, Director and CEO of OCBC Al-Amin Bank Berhad added, "Sukuk has arisen to become a key instrument for cross-border capital flows, driven by the ever-growing demand for Shariah-compliant investments that transcend borders. The sobering reality, however, remains that the current demand for sukuk outweighs supply about twice over".
Islamic finance has been growing by double-digits in recent years, making it one of the star performers in international finance. The industry has also become more international, as seen from recent sovereign Islamic bond issues by newcomers Britain and Hong Kong.
According to Mr Menon, global Islamic financial assets are estimated to have reached US$1.8 trillion by the end of 2013, up from US$1.5 trillion in 2012.
This is a sector that saw double digit growth last year, with more players jumping in to tap growing demand.
"As more countries cater for Islamic finance, the scope for cross-border Islamic finance increases. We are beginning to see more cross-border sukuk issuance within Asia as well as between the Middle East and Asia," he said.
In Singapore, Mr Menon said Islamic assets under management have surged nearly fourfold over the last five years.
There are now 15 banks in Singapore involved in Islamic banking, double the number five years ago. The city-state also had nearly 30 sukuk issuances to date, with seven in 2013 alone, he added.
There are now 15 banks in Singapore involved in Islamic banking, double the number five years ago. The city-state also had nearly 30 sukuk issuances to date, with seven in 2013 alone, he added.
However, Kuala Lumpur is currently the world leader in Islamic sukuk market, accounting for 60 percent of the global total.
To tap growing demand, Hong Kong and the UK have recently taken steps to facilitate sukuk issuance.
"These are very important initiatives from an Islamic finance perspective. When you have a sovereign taking the lead, you then have private sector also following suit. It would lead to other UK corporates looking to raise sukuks, (and then) lead to other corporates from other parts of the world looking to issue sukuks in London and similarly out of Hong Kong," said Mr Wasim Saifi, the Global Head of Islamic Banking in Consumer Banking and CEO of Standard Chartered Saadiq in Malaysia.
Industry players say the increase in trade flows between Asia and the Middle East as well as growing support for Islamic finance will provide significant opportunities. A key to tapping these opportunities lies in driving greater connectivity between the different markets.
According to the latest EY report, global Islamic banking assets are expected to grow to 3.4 trillion US dollars by 2018.
In particular, EY identified six rapid growth markets - Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT).
The consultancy expects Islamic banking assets with commercial banks to grow at a compound annual growth rate of 19.7% over 2013-2018 across the QISMUT countries, to reach US$1.6 trillion by 2018.
Islamic banking assets in these six countries are set to cross US$662 billion in 2013.
S'pore 'plays crucial role' in Islamic finance
But there's room for growth, say Islamic banking chiefs at meeting
By Mok Fei Fei, The Straits Times, 3 Jun 2014
But there's room for growth, say Islamic banking chiefs at meeting
By Mok Fei Fei, The Straits Times, 3 Jun 2014
SINGAPORE has a crucial role to play as a regional hub in the growing area of Islamic finance even though Malaysia is a clear leader, industry experts say.
The Republic was generally lauded for its efforts in the sector by industry players speaking yesterday at a workshop of the Fifth Annual World Islamic Banking Conference at the Pan Pacific hotel.
Islamic finance involves products complying with Islamic or syariah law - including a ban on interest and investments in areas such as alcohol and gambling.
Singapore won praise for putting in place legislation to allow for Islamic financing as well as establishing the infrastructure for financial issuers and firms to provide more syariah-compliant products and services.
The Monetary Authority of Singapore (MAS) was the first central bank of a non-Muslim majority jurisdiction to come up with an ongoing local currency sukuk or Islamic bonds issuance programme.
It announced in 2009 the completion of its sukuk issuance facility to provide syariah-compliant regulatory assets.
But more can be done, said Islamic financing chiefs, including Mr Saad Rahman, the head of global Islamic banking at Credit Agricole CIB Dubai.
He told The Straits Times that in Malaysia, close cooperation has been fostered between the private and public sectors to make Islamic financing work.
In Singapore, Mr Saad noted that there is more independence between the entities.
As a result, there is probably less impetus to push for Islamic financing, especially when it comes to issuing sovereign sukuk.
"To be honest, they don't need the money and sometimes when you don't need the money, you don't see the need to go out and do something like this," he said.
He pointed out that Singapore companies with a growing presence in the Middle East can also do more to spur Islamic financing.
"More and more Singaporean corporates are active in the Middle East. It's a great way of raising their profile and it's a great way for them to reward investors who are investing in their products in the Middle East by also raising liquidity from the Middle East.
"This will allow them to diversify their investor base and get away from the banks in Singapore which are always their financing partners."
Mr Ijlal Ahmed Alvi, the chief executive of International Islamic Financial Market in Bahrain, said Singapore's strong legal system is a boon when it comes to financial contracts like Islamic hedging or collateralisation.
He said Singapore has a lot of potential, having notched up about US$2 billion (S$2.5 billion) in sukuk issuance since it started investing in Islamic financing.
Syariah-compliant real estate investment trusts (Reits) could be another area of focus, said Mr Ijlal.
"Singapore has a good and big conventional Reit market. Islamic Reits have also been done, so those are the niche areas which in my view would be ideal for Singapore to leverage on," he said.
Allen & Gledhill partner Yeo Wico said there has been a growing trend of sukuk issuances in Singapore over the years.
"From my personal experience, last year was the most active year we ever had for sukuk. We had three sukuk programmes established by a range of issuers," he said.
"Generally speaking, in Singapore, apart from the MAS, we have real estate companies, resources companies as well as oil and gas services companies that have issued sukuk so far."
S'pore should sharpen its edge in Islamic finance
Islamic finance is currently one of the sunniest spots in the global financial industry, but Singapore risks being left in the shade
By Emir Hrnjic, Published The Straits Times, 22 Jul 2014
Islamic finance is currently one of the sunniest spots in the global financial industry, but Singapore risks being left in the shade
By Emir Hrnjic, Published The Straits Times, 22 Jul 2014
AT THE 2014 World Islamic Banking Conference held in Singapore last month, Monetary Authority of Singapore (MAS) managing director Ravi Menon said "the sun is shining on Islamic finance".
The sector, which covers financial activities compliant with Syariah law, has grown much faster than other areas of finance in the past two decades, thanks in part to petrodollars from the booming Middle East.
This makes it one of the brightest spots in global finance, an industry still riddled with dubious practices and stalled growth.
Singapore, however, risks being left in the shade.
Like other financial centres, the Republic has tried to ride the sector's expansion, mainly by levelling the rules for Islamic and conventional finance and introducing tax incentives for issuers of Islamic financial products.
It has recorded milestones such as the listing of Sabana Reit - the world's largest Islamic Reit - and a $750 million Islamic syndicated loan by Parkway Holdings.
But while Singapore remains one of the non-Muslim majority countries among the top centres for Islamic finance, its edge is being eroded. In last year's Islamic Finance Country Index, Singapore was surpassed by Britain and the United States - both non-Muslim majority countries - in terms of Islamic financial assets. Of the global industry's estimated US$1.8 trillion (S$2.2 trillion) in assets last year, Singapore accounted for a mere 0.6 per cent. Islamic assets under management in Singapore are worth about $4.375 billion, or less than 0.3 per cent of the total assets managed by Singapore-based asset managers.
Some efforts by the MAS to spur the sector's growth have also petered out. Its tax incentives for Islamic finance recently expired and have not been renewed.
To date, Singapore issuers have launched about $4 billion in Islamic bonds - just 4 per cent of the $105 billion issued by neighbouring Malaysia last year alone.
Losing out?
THERE is good reason to worry about Singapore missing out on this fast-growing area of finance, which brings benefits not just to the overall economy but to individual issuers and investors as well.
My colleague Professor David Reeb, the government of Dubai's Harun Kapetanovic and I recently analysed Emirates' US$1 billion sukuk - bonds complying with Syariah law - last year, when the company also issued US$750 million in conventional bonds.
Even though the airline's conventional bonds had similar maturity and risk, the Islamic bonds provided capital at a significantly lower cost - roughly 50 basis points less, or $6.25 million in interest cost savings per year.
This likely arose from the huge mismatch between demand and supply. For every Islamic bond issued, there are at least two willing buyers. In general, firms can raise capital more cheaply through Islamic bonds, which also give Islamic investors a chance to invest in Syariah-compliant securities issued by reputable companies with strong credit credentials.
These perks have lured other global financial centres to engage in more Islamic finance activities.
Britain successfully issued a £200 million (S$425.7 million) Islamic bond last month, becoming the first Western country to sell such bonds. The issue was 10 times oversubscribed and underpins London's efforts to be a global hub for Islamic finance.
Luxembourg, another large European financial centre, is now preparing to sell €200 million (S$337.8 million) worth of sovereign Islamic bonds.
In the Middle East, the Islamic finance industry centred in Dubai includes commercial banking, asset management, Syariah consulting, insurance, endowments and other financial services. Islamic assets in Dubai have grown 15 per cent yearly and represented about 16.7 per cent of overall finance in the emirate last year.
Closer to home, Hong Kong has eased tax laws for sukuk issuances and agreed to work closely with Malaysia, the leading hub for sukuk issuance, with more than half the global market share. The territory is also planning its maiden sovereign sukuk this year to raise up to US$1 billion.
Closer to home, Hong Kong has eased tax laws for sukuk issuances and agreed to work closely with Malaysia, the leading hub for sukuk issuance, with more than half the global market share. The territory is also planning its maiden sovereign sukuk this year to raise up to US$1 billion.
Singapore's role
TO AVOID being left behind, Singapore should do more to foster the growth of Islamic finance.
The Republic can find its own niche in the sector by relying on its strengths, including its reputation for safety, security and stability. All three are key requirements for Islamic wealth management, an area Singapore could focus on developing and promoting.
Like Hong Kong, Singapore could also collaborate with Malaysia for investors in both markets to benefit from their respective specialisations in Islamic finance.
In addition, given the healthy global demand for Islamic financial products, the Singapore Exchange could become a major trading arena for Islamic bonds. This would increase the bonds' liquidity and help match institutional investors with firms needing funds.
Singapore might also consider issuing government Islamic bonds regularly - preferably with differing maturities - to attract international Islamic capital, while providing a benchmark for potential corporate issuers.
For Islamic equity investments, once there is enough critical mass here, it could be advantageous to provide a benchmark such as a Singapore Islamic Exchange Traded Fund or a Singapore Islamic Market Index.
To develop the necessary human capital and financial technology for a thriving Islamic finance sector, Singapore could also set up an institute for education and research in Islamic finance.
Finally, MAS could consider re-introducing the tax incentives for Islamic finance that expired last year. They might include tax deductions on the issuance costs and income tax exemptions for Special Purpose Vehicles.
Islamic finance in Singapore has yet to reach its full potential. Success in this sector needs robust, long-term government support. The game is global, and only long-term players will prosper.
The writer is director of education and outreach at the NUS Business School's Centre for Asset Management Research and Investments.
The writer is director of education and outreach at the NUS Business School's Centre for Asset Management Research and Investments.
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