Interestingly, the attention for Islamic finance is not only coming from Muslim countries but also from non-Muslim ones as well. Indeed, some non-Muslim countries are aiming at becoming the hub for Islamic finance. Hongkong for example aspires to be an Islamic finance gateway to China, while the UK aims to entrench London as a global gateway for Islamic finance. Last but not least, Singapore also aspires to be the main center for Islamic finance in Asia. This article tries to further analyze on the future development of Islamic finance in Singapore. (source)
Singapore at a Glance
Officially known as the Republic of Singapore, Singapore, which is situated off the southern tip of the Malay Peninsula in Asia has a diverse population of about 5.08 million people and comprises of Chinese, Malays, Indians, Caucasians and Asians of various descents. The city-state is also ranked as the seventh richest country in the world in terms of its GDP per capita ($) at 48,900. In 2010, the World Bank reported Singapore’s GDP (current US$) at $208 765 019 308 and categorized its income level as high. In addition, Singapore is among the few small, resource poor countries with very high growth rates. With financial services being a very important part of the economy where it contributes around 11 to 12 percent of the GDP and as Singapore is consistently being molded into a financial hub, offering comprehensive financial services that extended to Islamic finance is thus an important offering.
Islamic Finance in Singapore
The two main markets where the $1 trillion industry mostly prospered are the Middle East and Asia. In the Middle East, the foremost Islamic finance players include the UAE, Qatar, Kuwait, Bahrain and Saudi Arabia, whereas in Asia, Malaysia has taken the lead, whilst other players include Brunei Darussalam and Indonesia. Presently, the development of Islamic finance in Singapore, though recent, has witnessed spectacular developments. Singapore is quickly turning out to be an exciting and appealing proposition for Islamic finance in Asia. Also, with the enactment of the Banking Act in 2005, it has better placed the Monetary Authority of Singapore (MAS) in assisting the growth and development of Islamic finance in the country. In addition, MAS has also revisited its tax framework to ensure that Islamic finance and banking products will not be adversely impacted by conventional finance and banking practices in Singapore.
Accommodating this fast-growing industry within its existing regulatory and supervisory frameworks has led to agreeing to the creation of special branches based on the Shari’ah law – namely Islamic windows or Islamic banking units. This is clearly evident since 1998 where a few banks have implemented a dual banking system within their operations by providing Shari’ah- compliant services through Islamic windows.
The first trace of Islamic finance in Singapore can be found in 1995 when HSBC (Singapore) launched its Takaful Global Fund.[1] Malaysia’s Maybank introduced its Shari’ah – compliant Singapore Unit Trust Ethical Growth Fund in 2001, followed by its Shari’ah compliant on-line savings account and checking accounts in 2005.[2] In 2006, OCBC Bank commenced its first Shari’ah-compliant term deposit for their wholesale customers. Moving forward, DBS Bank launched the first Islamic bank in Singapore named Islamic Bank of Asia in 2007. Notably, Singapore has also issued its first Sukuk worth SGD200 million ($134 million) which was recently completed in 2009. And the latest is of course the largest Shari’ah-compliant REIT by total assets globally named Sabana REIT.
The Future of Islamic Finance in Singapore
Although a relatively new player with a small domestic market, Singapore is nevertheless a regional financial hub. Thus it can leverage on its internationally recognized financial status and strong banking fundamentals to build a niche for itself in the rapidly growing market. Moreover, unlike other countries, such as Bahrain, Oman, Syria, Indonesia and various other Middle East and Asian countries in which negative political images have hampered the growth of Islamic finance, Singapore is not hindered by such setbacks. In actual fact, its strong and stable political environment can act as a catalyst in helping to serve the needs of the significant Muslim community in the region where Islamic finance is not as well-advanced as the markets of the Middle East. Thus, the ‘red-dot’ country on the world map has a reputation as an established, open financial hub, where strong partnerships between the government and the industry, highly trained industry professionals and the country’s overall attractiveness as a business location can all play an important role in attracting Islamic finance investors towards the Islamic financial sector.
Other influential factors in support of Singapore’s drive towards being the regional powerhouse for Islamic finance include its geographical proximity and strong ties with Malaysia and Indonesia, a stable society, healthy and robust governance, strong and firm legal and regulatory frameworks and traditional respect for all religions. Its close international links with the Middle East will also set as an ideal platform to promote itself as the regional hub for Islamic finance in this part of the world.
Challenges Ahead
Unfortunately, great challenges do lie ahead in its proposition towards developing the industry. One of the key challenges is talent development as there are not enough experts who truly understand the depth of Islamic finance markets so as to meet the needs of the clients and investors. In addition, their understanding of Shari’ah which is a critical part of Islamic finance industry is also deficient. Moreover with only 15% of the 5.8 million population being Muslims, this creates wariness among the financial institutions in Singapore towards Islamic finance as it is clear that the domestic market is very small. In addition, with one of the key drivers for Islamic finance growth worldwide is retail banking, Singapore, due to its very small population, this sector of banking is constrained. Retail banking fever, on the other hand, has prospered in the Middle East, Africa, Russia and China. This has forced the city-state to tend to focus more on corporate treasury, wholesale and offshore. Thus the possibility of reaching to the Islamic finance retail investors worldwide is limited.
Moving Forward
Even though Singapore remains a relatively new market accomplice in Islamic finance coupled with great challenges ahead, the development of Islamic finance in Singapore can be used as a tool to cooperate with other regions and thus helps to deepen the economic interaction between the Asean regions and the Middle East. One area where Singapore is lacking, which is talent development, can be easily tackled with its present close ties with universities in Malaysia and Indonesia who are fully equipped with Islamic finance programs. These Singaporean talents can either be sent over or Islamic finance academic experts from both Malaysia and Indonesia can be brought over to Singapore to further educate these talents on the areas of Islamic finance. Another area where Singapore is lacking is the current strain in retail banking. The city-state should further identify that gap and find various ways to actively encourage development in the above-mentioned field.
Although Malaysia can be regarded as the leader of Islamic finance in this part of the world, Singapore can actually be an easier model for many other countries to emulate. This is because unlike Malaysia which has a very large Muslim population and a strong push by the government to promote Islamic finance, Singapore’s Islamic finance outlook tends to be more realistic. This is because with a much smaller Muslim population, it takes Islamic finance as a part of its global financial hub, which is inclusive of the conventional finance and everything else. This will then allow a level playing for the clients who will be given choices to get the cheapest source of financing, along with the best skills. In conclusion, the ‘red-dot’ country on the world map can be used as a platform in helping Islamic finance to reach a more diverse audience and thus promises wider acceptance of Islamic finance globally.
About the Authors
Shabana M. Hasan joined ISRA as a researcher in December 2010. Prior to that, she had just completed an MSc in Islamic finance (with distinction) from the University of Durham, United Kingdom. Presently, she is also an editor for ISRA Bulletin. She holds a diploma in Accounting and Finance from the Temasek Polytechnic Singapore followed by a Bachelor of Economics (Hons) from International Islamic University of Malaysia (IIUM), with a specialisation in Islamic Economics. She is also one of the writers of the world’s first comprehensive Islamic finance textbook, Islamic Financial System: Principles & Operations. shabana@isra.my
Mohammad Mahbubi Ali is a researcher at the International Shari’ah Research Academy (ISRA) for Islamic Finance. He received a bachelor degree in Islamic Economics from Islamic Business School, Tazkia Indonesia and Chartered Islamic Finance Professional (CIFP) from INCEIF, The Global University in Islamic Finance, Malaysia. Prior to joining ISRA, he was an assistance lecturer at The Islamic Business School, Tazkia. He has written some book chapters and published several articles in magazines and newspapers. He was also the features editor for several magazines and bulletins in Indonesia mahbubi@isra.my
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of ISRA and should not be attributed to it.
[1] Islamic Finance Opportunities: Country and Business Guide 2010
No comments:
Post a Comment