Brunei Darussalam: Islamic banking earmarked for further growth

The Islamic banking segment strengthened its position within Brunei Darussalam’s financial services industry last year on the back of rising demand that led to the launch of a new bank and major bond issuances. Having moved early to establish sharia-compliant services, the Sultanate is now well placed to carve out a niche for itself as an international Islamic banking centre. However, the industry will need to address a number of challenges, led by a shortage of skilled workers, if it is to fully support the segment’s development.

In mid-October, Standard Chartered Bank Brunei (SCB) said it was mulling plans to introduce Islamic banking products this year to meet increased demand for sharia-compliant banking services in the Sultanate. SCB’s announcement followed the September launch of the Islamic Bank of Brunei, which replaced the International Bank of Brunei as the sole domestically owned bank operating in the country.

The Tabung Amanah Islam Brunei was the first financial institution to offer savings and financing in accordance with Islamic principles when it was launched in 1991, followed two years later by the Islamic Bank of Brunei. They were joined in 2000 by the Islamic Development Bank of Brunei.

SCB’s CEO, Lai Pei-Si, told reporters during a media luncheon held at Hua Ho Manggis Mall in October that launching an Islamic bank was a “logical step to take and logical step to consider because Brunei has an express need for Islamic banking products”. He added that the bank would begin modestly by offering Islamic products, with hopes of bringing “much more comprehensive Islamic solutions into the country”.

In April, the managing director of Bank Islam Brunei Darussalam, Javed Ahmad, said the market share held by sharia-compliant banking was expected to increase to 60% from its current levels of 40-55% over the next five years.

Speaking at a seminar on Islamic finance, Ahmad said Brunei Darussalam’s strengths, led by strong economic and political stability, good infrastructure and government support, meant it was well placed to build a reputation as an Islamic financial centre. “With more aggressive marketing, Brunei Darussalam’s journey towards making itself an Islamic financial hub might become a possibility in the next few years,” he said.

A report prepared in December by global consultancy firm Ernst & Young said the worldwide value of Islamic banking would reach $1.55trn in 2012 and $1.8trn this year. Growth within the Muslim population of Middle East and North African countries and Asia, it added, were key drivers in the increasing demand for Islamic financial services. The Sultanate is clearly benefitting from early participation in the Islamic banking segment, having launched its first Islamic bond, the Short Term Government Sukuk Al-Ijarah programme worth BND150m ($111m) for a three-month certificate in April 2006.

In November, the Autoriti Monetari Brunei Darussalam (AMBD), which is acting as the central bank, announced the successful pricing of its 82nd issuance of sukuk, or Islamic bond, which was worth BND100m ($122.5m) at a rental rate of 0.16%. The move followed a $100m, 90-day issuance that matures this month.

While Brunei Darussalam is well placed to tap into growing interest in Islamic financial services, observers have highlighted the need for the Sultanate to develop new Islamic banking products if it is to maintain its position in the market.

“Understanding the theory of Maqasid al-Sharia (the objectives of Islamic law) and the defining characteristics of an Islamic bank could encourage the Islamic banking industry to improve and excel in their product innovation as well as financial intermediation that can be linked to economic growth,” Abdul Ghafar Ismail, a lecturer at the Research Centre for Islamic Economics and Finance, Universiti Kebangsaan Malaysia, said at a conference in May.

Industry experts believe the Sultanate is working to address these challenges, with a particular emphasis on improving staff training after human resources was identified as a factor that could limit its success in the field. “Having strengthened its operational base and regulatory framework, Brunei is now taking steps to address a shortage of trained industry professionals in the Islamic financial sector by providing on-the-job training and local universities offering bachelors, masters and doctorate degree programmes related to Islamic finance,” said Javed.

The Sultanate’s early entry into the Islamic financial services market has provided it with solid foundations to develop the industry. Experts suggest the sector should now shift its focus to exporting that expertise and consolidating a global role in sharia-compliant banking.

(Oxford Business Group / 24 Jan 2013)

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Brunei Darussalam: Halal innovations

As an increasingly significant player in the rapidly expanding global halal market, Brunei is laying the groundwork for further industry growth by extending its reach across Asia and Latin America, while also encouraging product innovation.

The Sultanate has benefitted from its position as one of the early entrants in the international halal market, which today supplies approximately 1.8 billion people worldwide and is estimated to be worth US$2.3 trillion.

Having launched the Brunei Halal brand in 2010, the Sultanate has since strengthened its reputation by becoming one of the few countries outside of the Middle East to establish an internationally recognised certifying body for the industry.

In April, Romleah Juliet P Ocampo, a representative from the Philippine’s Centre for International Trade Expositions and Missions, described Brunei Darussalam’s halal standards as the ‘highest in the world’.

The Sultanate’s halal brand now looks to be generating significant interest among emerging players, including non-Muslim countries, who are keen to gain a share of market growth.

Philippine President Benigno S Aquino III used an official visit to Brunei in late September to highlight the country’s interest in exploring opportunities for setting up joint ventures in the halal food industry.

Local media reported in April that a number of Thai firms have also headed to Brunei this year to discuss possible partnerships in sugar refinery and halal food production initiatives.

Thailand’s ambassador to Brunei Darussalam, Apichart Phetcharatana, told media that collaborative ventures would benefit both countries.

“We can promote the Brunei Halal Brand to the world and we can use Thai experts to assist Brunei,” he said.

Other countries further afield are also in talks with Brunei, including South Korea, which is eyeing the potential of halal cosmetic products, and Mexico, which plans to send entrepreneurs to the Sultanate later this year to discuss the potential for halal food production in the Latin American country.

While interest from around the world bodes well for Brunei’s plans to develop its halal brand, new players in the market, particularly in major growth areas such as China, India and Europe, are likely to challenge the Sultanate for its position as industry leader.

Aware of mounting competition, Brunei Halal is looking to expand its operations by setting up new production centres to run alongside its manufacturing bases in Malaysia, Spain and the UK.

The fi rm has also introduced a range of new products in June.

“There has been considerable progress for the brand,” a company representative told local media.

“For one, our product range has grown in numbers and categories with new markets within and beyond the region also being explored as we continue procuring products.”

The Brunei Agro-Technology Park (BATP) is likely to be instrumental in driving industry growth by providing local manufacturers with modern facilities they need to stay globally competitive.

The park will cover 50 hectares in Kampung Tungku, with the first phase earmarked for completion in 2015.

Feby Latip, chief executive officer of Brunei Wafirah Holdings which manages the Brunei Halal brand, told The Brunei Times in August that he expected the facility to help small and medium-sized enterprises (SMEs) tackle a range of challenges, from developing and exporting products to obtaining their halal certification.

“The incubators within the park would help SMEs with that,” he said.

The BATP will also have a strong focus on research and development, which could prove key to the Sultanate’s plans to diversify away from a reliance on oil and gas revenues, particularly in newly emerging segments such as halal pharmaceuticals.

Last year, Canadian firm Viva Pharmaceuticals invested US$26 million in the Sultanate to create a state-of-the-art pharmaceutical facility, buoyed by confidence that the halal pharmaceuticals sector would match the industry’s success in food, cosmetics, sharia-compliant health care and financial and investment products. 

(Borneo Post Online / 21 Oct 2012)

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Brunei: Investing in the future of Islamic finance

Brunei has long identified the Islamic finance as a sector that can be developed to its advantage, both to serve the banking needs of its domestic economy and as an avenue for economic development at the international level.

To achieve these objectives, however, it will need to step up investments in human resources.

Having first launched the Islamic finance option more than 20 years ago, sharia-compliant banking now accounts for around 40 per cent of the local market, a figure some experts believe will rise to 60 per cent by 2017.

Though Brunei Darussalam has made significant strides towards developing itself as a strong Islamic finance centre, experts identified a number of key areas the Sultanate needs to expand and improve upon if it is to achieve its goals.

One of the foremost requirements was for Brunei to produce more sharia experts, according to Mohamad Akram Laldin, the executive director of the Malaysia-based International Syariah Research Academy for Islamic Finance.

Speaking in Bandar Seri Begawan while attending the International Conference on Islamic Finance, held in mid- May, Akram said a major challenge for the industry was to integrate knowledge of syariah and of the market.

“We need to have more sharia graduates go into the area and understand the market,” he said.

“We need people who are able to run the business, who are capable, and can plan.

“I believe with the establishment of the Centre for Islamic Banking, Finance and Management (CIBFM), Brunei has taken a very good step.

“We have started seeing more and more people who are trained in Islamic finance coming up.This is a very good sign.”

he added. Brunei’s leading educational facilities will also seek to support the government’s policy of developing the Sultanate as a centre of Islamic fi nancial excellence.

The CIBFM, which was established by the Ministry of Finance to address key challenges in Islamic financial practice and to assist in the development of human resources for the sector, as well as other institutions, was also working to deepen the pool of qualified personnel in Brunei.

The Universiti Brunei Darussalam (UBD), along with the Sultan Sharif Ali Islamic University and other centres, offer a range of courses on various aspects of Islamic finance.

In mid-April, the UBD announced it would be reviewing its curriculum for its Islamic finance courses to ensure their content was relevant to the sector, a process that would also include seeking input from the industry itself.

According to Mohd Hairul Azrin Besar, a lecturer at the UBD’s Faculty of Business, Economics and Policy Studies (FBEPS), it was vital for educational institutions offering qualifications in Islamic finance to make sure their syllabus reflected the needs of – and the latest developments in – the industry.

“We can produce graduates but if they are not relevant to the industry, they would not be contributing much to it,” Mohd Hairul Azrin said.

“So for now we are looking at the university itself; the respective faculties will re-evaluate what the syllabus is and see how relevant it is. I think we will also be looking at what the industry players expect from the syllabus.”

Another development that should boost Islamic finance’s educational stocks was the announcement by Bank Islam Brunei Darussalam (BIBD) in mid-April that it would be sponsoring a chair of Islamic banking and finance, leadership and entrepreneurship at the FBEPS.

According to Javed Ahmad, the managing director at BIBD, the person appointed to the position would be a prominent international figure who would contribute to programme development, teaching methods and research in the areas of Islamic banking and finance, leadership and entrepreneurship.

“The chairperson will drive collaborative research on the development of Islamic financial products, as well as to provide solutions to overcome the industry’s challenges,” Javed said. “The chairperson will provide the faculty, and UBD as a whole, the platform to become a leading international academic centre in the fi eld of Islamic finance, leadership and entrepreneurship.” he said.

It will take sometime before all of Brunei’s human resource investments in Islamic finance begin to pay full dividends, though the sector is clearly already profiting from 20 years of experience and a generation of professionals that have grown up inside the industry.

(Berneo Post Online / 17 June 2012)

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Brunei: More graduates needed in local Islamic finance sector

BANDAR SERI BEGAWAN - Brunei needs to encourage more Syariah graduates to enter the finance sector if it wants to become a legitimate player in the Islamic finance industry, said an expert here yesterday.

Executive Director of Malaysia-based International Syariah Research Academy for Islamic Finance Dr Mohamad Akram Laldin said building human capacity is the key to developing Brunei's niche in the market.

"The challenges are integrating the Syariah knowledge and market knowledge. We need to have more Syariah graduates to go into the area and understand the market."

"We need people who are able to run the business, who are capable, and can plan. I believe with the establishment of Centre for Islamic Banking, Finance and Management (CIBFM), Brunei has taken a very good step," Dr Akram said on the sidelines of yesterday's International Conference on Islamic Finance held in the capital.

CIBFM was officially launched earlier this year and offers a range of short courses for banking and finance staff to acquaint them the tenets of Islamic finance.

"We have started seeing more and more people who are trained in Islamic finance coming up. This is a very good sign... The majority (of the) population of Brunei are Muslims, so that is another encouraging factor to improve manpower," he said.

However, working in the English language medium has proven difficult for Syariah graduates and remains a barrier to them entering the finance sector, said Dr Akram.

Accustomed to using Malay and Arabic in their professional lives, graduates will need to become proficient in English as it remains the language medium of finance globally.

"Syariah graduates sometimes feel very uncomfortable using English. I believe we can slowly overcome this."

The need for staff well-versed in Islamic finance becomes more pressing with non-Islamic banks entering the fray.

Dr Akram, who also acts as a consultant for HSBC Brunei, said the bank is also entering the "Islamic window" by drawing up Syariah-compliant financial products.

"In most jurisdictions this is allowed, only in some places such as Qatar they do not allow (conventional banks to offer Islamic finance products). They will have what they call an Islamic window."

Southeast Asia can capitalise on the growing Islamic finance sector, projected to be valued at US$2 trillion by 2017, he added.

"In Southeast Asia, each and every country has their own strength... From what I can see, in Brunei, maybe wealth management, in Malaysia, we have sukuk, in Singapore corporate and investment banking, Indonesia, because of the huge population base retail banking."

(Asia One Business / 16 May 2012)

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Brunei must find niche in Islamic capital markets

MUARA, Brunei - Brunei's Islamic finance sector must find a niche in Islamic capital markets and reposition itself to find new opportunities in order to catch up with other industry players in the region, an expert said.

Sri Anne Masri, managing director of Pro Ethica Training and Research, said more building blocks are needed in the country to pave a way for the creation of more Islamic products and services such as equity funds, wealth management, and murabahah.

"Just looking at sukuk, we are far behind our Malaysian counterparts," said Sri Anne during a seminar co-hosted by Universiti Brunei Darussalam's Faculty of Business, Economics and Policy Studies (FBEPBS), Sultan Omar 'Ali Saifuddien Centre for Islamic Studies of UBD and the United Kingdom's Markfield Institute of Higher Education (MIHE).

Malaysia has issued US$26 billion (S$33.8 billion) worth of sukuk to date, compared to Brunei's $3.851 billion since the government's first issuance on April 6, 2006.

"Islamic finance has been running for 20 years and challenges and opportunities has cropped up in the market. The overview of Brunei's market shows that the Sultanate has political stability, strong Islamic framework and a strong regulatory framework.

"Brunei has the capacity and is financially capable to spearhead the finance industry from oil and gas towards economic diversification through strong government to grow Brunei into an Islamic financial hub," said Sri Anne.

However, Sri Anne said that Brunei is not pacing fast enough compared to regional players and is important for the country to find a niche in areas such as Islamic private wealth management, Islamic advisory services and private equity.

Once pending regulations from Autoriti Monetari Brunei Darussalam (AMBD) are finalised, it will help in creating the necessary infrastructure for Islamic capital markets, she said.

"With this we will move forward. What is more important is to see what products the market is interested in so they can build the supply base to attract foreign investors into Brunei and build it up from there," she said.

During a question and answer session that followed, Sri Anne said fear of failure is hindering many players in Islamic finance from progressing.

"But failures are what make us better. Looking at sukuk defaults in 2007, what happened in the Islamic finance industry in Saudi or the US, that has made us better now. The international players in terms of sukuk issuance are more careful in looking at the substance of the sukuk contracts," she said.

"We don't want to make ourselves too close to conventional (banking) and just change the name from bonds to sukuk without having the real essence tied into it.

(Asia One Business / 12 April 2012)

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