The fledgling Islamic finance industry was propelled into the global spotlight in the aftermath of the financial crisis as it was seen as a more ethical, less leveraged way of banking. (source)
But the Gulf's real estate crash, a series of defaults on Islamic bonds, or sukuk, and its own corporate scandals have taken the shine off the industry and it needs to find new growth markets outside its traditional centres, Malaysia and the Gulf Arab region.
"A lot of money has been received by the rise in petrol and that needs to be reinvested. Not many sukuk have been recently issued so it's an opportunity to grab that liquid market," Dheerasak Suwannayos, president of the state-owned Islamic Bank of Thailand, told an industry event in Bangkok.
On Wednesday, Malaysia issued a $2 billion sukuk, almost 30 percent of which was mopped up by Middle Eastern investors.
Infrastructure investment is expected to jump in Thailand as well as other Southeast Asian countries.
Dheerasak cited plans to expand Bangkok's public transport and the city's main airport as projects the industry could help by finding finance abroad.
So far Thailand has been able to use the abundant liquidity in local markets to finance infrastructure projects.
Dheerasak said companies such as Thailand's top energy firm, PTT , were increasingly diversifying from their home market and needed to raise finance in dollar markets.
A PTT unit issued a local-currency Islamic bond in Malaysia last year, seen as the first time a Thai company had tapped Islamic capital markets abroad.
Dheerasak also said Thai Airways was considering offers from Middle Eastern providers of airplane lease financing.
Islamic finance needs to underpin its transactions with physical assets, from which returns to investors are derived to account for Islam's prohibition of interest.
LACK OF AWARENESS
Thailand has been planning for some time to issue a 5 billion baht ($161 million) sovereign sukuk to help the sector get off the ground and Dheerasak said the issue could come to the market this year after necessary tax legislation was passed in May.
Thailand has a Muslim population of about 9.5 million, many of whom live in rural areas not well served with banking products.
"Islamic Bank of Thailand is pushing a lot of products into the retail market. The Muslims in the past did not have any alternatives," Konthee Prasertwongse, senior vice president at CIMB Thai Bank, told Reuters.
Islamic Bank of Thailand, set up in 2003, has turned buses into mobile branches to reach communities.
But bankers caution that more local banks need to offer Islamic products to raise awareness of the industry.
"We need more marketing here in Thailand, we need to clarify what a sukuk is and that it is comparable to a conventional bond," said Konthee. ($1 = 30.975 Thai Baht) (Reporting by Frederik Richter; Editing by Alan Raybould)
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