YTL Corporation Bhd group managing director Tan Sri Francis Yeoh said the sukuk market tends to be “property-centric” currently, but it is high time that Islamic finance move towards infrastructure financing to boost liquidity in the sukuk market.
“Southeast Asia needs infrastructure assets badly. Today, I believe an average person in Southeast Asia would like to invest in infrastructure, be it water or power,” he said during the forum entitled “Shaping Global Finance for the Next Decade” at the Global Islamic Finance Forum (GIFF) here yesterday.
Yeoh said however, the market lacked productive money, mainly because infrastructure transactions were still being done in the US dollar. “I think the price of infrastructure assets will drop if we stop using the US dollar as the intermediary for these transactions [asset acquisitions],” he added.
Yeoh also said that it was possible for Malaysia and Indonesia to look at the potential of bilateral trade payments between the two countries to bring down the price of infrastructure financing.
Tanri Abeng, commissioner of the board and PT Telekomunikasi Indonesia Tbk president commissioner, said Islamic finance is in the right position to increase its role in infrastructure financing as it already has strong links to productive economic activity.
“Post-financial crisis, we see a shift from financial engineering activity into the real sector, and it makes sense for more collaboration between Malaysia and Indonesia in this area, given that Malaysians are also invested in Indonesia,” he told reporters on the sidelines of the GIFF.
Tanri said he was not aware whether there were talks between the two countries’ regulators on bilateral agreements on infrastructure financing but said as a practitioner, the idea would be worth mooting to Indonesian regulators.
Malaysia currently dominates sukuk issuances (over 56.6% of all issuances). The global sukuk market is estimated to be worth about US$130 billion (RM402 billion).
Overall, there is about US$1 trillion worth of assets under Islamic finance, and the assets are growing at 15% to 20% a year.
Since the financial crisis, Islamic finance is being seen as the more conscientious approach. Its lending principles include a requirement that financing must be backed by tangible underlying assets and that both risk and profit are shared between the lender and borrower.
Nevertheless, industry observers say Islamic finance is not likely to be seen as an alternative to conventional financing, although it is fast growing and giving conventional financing some competition in certain sectors.
Jean Lemierre, BNP Paribas senior adviser to the chairman, said, for Islamic finance to grow meaningfully, Islamic finance should put legitimacy of financing as its priority. “Don’t use Islamic finance if it is for real estate financing that will create bubbles, but use it for infrastructure financing where it meets the real needs of the people,” he said.
Meanwhile, Tan Sri Andrew Sheng, China Banking Regulatory Commission’s chief adviser, said, the financial landscape had been made even more challenging with the near-zero-interest-rate policies in many countries, as more lending activities were done at the expense of real-sector lending, which in turn caused real economic growth to be fragile.
Under such circumstances, there would be opportunities for Islamic finance to tap into infrastructure asset financing, Sheng explained.
This article appeared in The Edge Financial Daily, October 26, 2010.
Source : http://www.theedgemalaysia.com/in-the-financial-daily/175997-islamic-finance-should-play-a-bigger-role-in-infrastructure-financing.html - Oct 26, 2010
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