Maybank Singapore inks novel hotel-backed Islamic finance deal

SINGAPORE's fledgling Islamic finance sector received a boost on Monday with Maybank Singapore announcing a first-of-its-kind Islamic financing deal worth S$260 million.

The deal, which has a hotel as the underlying security, was inked between the bank, part of Malaysia's Maybank group, and RB Capital.

The hotel, developed by RB Capital, is the 442-room, mid-tier Holiday Inn Express Singapore Clarke Quay.

Maybank Singapore said: "Hospitality-related assets are not typical in Islamic financing, which makes this the first to be done in a secular country, and also one of the biggest Islamic deals in Singapore."

Islamic financing bans interest, products with excessive uncertainty, gambling, short sales and the financing of prohibited activities considered harmful to society.

Asked how a hotel came to qualify as an asset for Islamic financing, a Maybank spokeswoman said that the bank had internal thresholds on non-Syariah-compliant sources of income.

"Based on the hotel's operations, Maybank was able to ascertain that the asset qualifies to be used as an underlying security for an Islamic financing facility," she said.

The Business Times understands that Holiday Inn Express Singapore Clarke Quay has one small restaurant, which limits the amount of non-Syariah-compliant food and beverage sold there.

With the global Islamic finance industry forecast to double to US$3.4 trillion by 2018, Maybank said that the deal shows the opportunities available for Islamic funds to diversify and invest in different asset classes, with Singapore playing a role as an international financial gateway.

Lim Hong Tat, Maybank Singapore chief executive, said: "As the largest Islamic banking player in ASEAN, Maybank has the deep expertise to structure financing deals tailored to our customers' needs, and to help them tap opportunities and new sources of funding.

"We are proud to partner RB Capital in making this progressive mark on Singapore's Islamic banking landscape."

He added that Maybank continues to look into growing its Islamic banking business in the region, especially in Singapore and Indonesia; each country now accounts for about 5 per cent of Maybank Islamic's revenue.

"Although the Islamic finance market here is relatively small, we plan to continue growing this market as long as we are able to create value for our customers and generate good returns," he said.

The Islamic finance market in Singapore had a tough first quarter this year; out of 37 bond deals, only one sukuk or Islamic bond was sold.

The deal represents RB Capital's first foray into Islamic financing.

Said Kishin RK, chief executive of RB Capital: "The deal is competitive to conventional financing. In addition, it provides RB Capital with the ability to further explore Islamic-compliant investments and financing regionally.

"We are delighted to have worked with Maybank to execute a first-of-a-kind deal in Singapore to meet the growing demand from Islamic investors."

Mr Kishin, who set up property and hotel group RB Capital in 2006, comes from the family behind the Royal Brothers property empire of the 1970s; his father Raj Kumar and uncle Asok were the founders.

Under a restructuring exercise that culminated in 2012, the brothers Raj and Asok swapped assets estimated to be worth S$1 billion, said a 2014 BT report. The move was part of their succession planning for their respective sons; Asok's son Bobby Hiranandani is Royal Group co-chairman.

Based in Singapore, RB Capital has an asset base exceeding S$4 billion. This year, the group is set to launch Farrer Square, a mixed development comprising the 300-room Park Hotel and Farrer Square Medical Suites. It will also open the 226-room Intercontinental Robertson Quay.

Maybank Islamic, the top Islamic bank in Malaysia and the largest Islamic bank in ASEAN, has a 28 per cent market share of Islamic assets in Malaysia. It was ranked fourth in the global sukuk league table for 2015, with a market share of 8.6 per cent from 106 issues totalling US$2.96 billion. For the year ended Dec 31, 2015, Maybank Islamic's total assets exceeded US$36 billion.

(Asia One Business / 05 April 2016)

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Singapore Sukuk Hub Goal Leaves a Lonely Sabana

Sabana (SSREIT) Shariah-Compliant Industrial REIT is the sole entity in Singapore to have sold sukuk this year in a setback to the republic’s ambitions to become an Islamic finance hub.

The real estate investment trust raised S$100 million ($79 million) in September after selling S$90 million of the debt in March, according to data compiled by Bloomberg. While the city introduced rules allowing for Shariah-compliant bond sales in 2006, offerings have been limited to issuers such as Sabana, the Monetary Authority of Singapore and energy services company Swiber Holdings Ltd.

Singapore is among a growing number of countries that are trying to grab a share of the Islamic finance industry, whose banking assets Ernst & Young LLP forecasts will double to $3.4 trillion by 2018. Hong Kong, Luxembourg and the U.K. have sold debut sukuk this year, joining the dominant markets of Malaysia, Indonesia and the Middle East.

“Unless there are new incentives introduced, or a credit crunch affects conventional funding sources, sukuk issuance in Singapore will likely remain rather opportunistic or event-driven,” Suhaimi Zainul-Abidin, treasurer of the city’s Gulf Asia Shari’ah Compliant Investments Association, said in an e-mail yesterday. “Based on current circumstances, there does not appear to be any reason to expect a pick-up in sukuk.”

Tax Incentives

A lack of Singapore incentives and the absence of Islamic pension funds and bond investors that need Shariah-compliant investments are reasons for the slow sukuk issuance, Suhaimi said. Malaysia, the world’s biggest market for the debt, offers income tax and stamp duty exemptions to encourage sales.

Hong Kong, one of the region’s major financial centers along with Singapore, sold a debut dollar Islamic bond in September. The $1 billion of government securities attracted orders for 4.7 times the amount on offer and opens up the market to potential corporate issuers from China.

Sukuk sales in the city-state to date number 30 and total S$4.4 billion, according to an e-mailed statement yesterday from the Monetary Authority of Singapore, which didn’t provide specific details. That compares with 47.7 billion ringgit ($14.6 billion) this year in Malaysia, data compiled by Bloomberg show.

Singapore Muslims make up about 14 percent of the republic’s 5.6 million people, smaller than in Malaysia where 61 percent of the 30 million population are followers of the religion, according to U.S. government data.

‘Create Opportunities’

The Monetary Authority of Singapore set up a sukuk trust certificate program in 2009 and has since issued about S$459 million of the securities, all with one-year maturities, its annual reports show.

City Developments Ltd., a Singapore home builder, started a similar S$1 billion program to the one from MAS in 2008 and has S$275 million of the debt outstanding, according to data compiled by Bloomberg. Swiber sold S$150 million in August last year via private placement and Majlis Ugama Islam Singapura, a government religious affairs agency, has issued S$89 million since 2001, the data show.

“We can expect more sukuk issuance in the future, as there are sukuk programs established by Singapore corporates that have not been fully tapped yet,” the Monetary Authority of Singapore said in the statement. “We will continue to create opportunities for interaction and collaboration.”

Sabana Sukuk

Sabana, the world’s biggest Islamic REIT, has sold S$270 million of Shariah-compliant notes since 2012, data compiled by Bloomberg show. The trust’s shares have declined 6 percent this year to S$1.02, following 2013’s 5.3 percent drop. Singapore’s Straits Times Index has climbed 2.4 percent in 2014.

In Malaysia, which pioneered Islamic finance more than 30 years ago, Axis Real Estate Investment Trust (AXRB) has gained 25 percent to 3.65 ringgit this year. The nation’s biggest Shariah-compliant REIT is outperforming the FTSE Bursa Malaysia KLCI Index, which dropped 1.3 percent.

Singapore is rated the top investment grade of AAA by Standard & Poor’s, the same ranking as Hong Kong and six levels above Malaysia.

“Given the credit rating of Singapore, the government and government-related bodies should start issuing sukuk,” Abas A. Jalil, chief executive officer at Kuala Lumpur-based consulting company Amanah Capital Group Ltd., said in a phone interview yesterday. “That would surely attract more investors to Singapore and develop its market.”

Khazanah, IDB

The city-state has also attracted overseas issuers. Khazanah Nasional Bhd., Malaysia’s sovereign wealth fund, has sold S$2.1 billion via three sukuk sales. In its most recent offering in October last year, the company issued S$600 million. The Jeddah, Saudi Arabia-based Islamic Development Bank also raised funds from Singapore dollar Shariah-compliant bonds in 2009 and those have already matured.

Singapore has a total of S$2.8 billion of corporate sukuk outstanding, compared with $91.4 billion in Malaysia, data compiled by Bloomberg show.

“Singapore has to work closely with its neighbor Malaysia as they are the undisputed largest sukuk issuer in the world,” Bobby Tay, co-founder of Sabana Real Estate Investment Management Pte. Ltd., which manages the Sabana REIT in Singapore, said in a Sept. 30 e-mail interview. “The need for incentives and tax treatment will also be crucial for issuers.

(Bloomberg / 02 October 2014)

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Singapore struggles to establish broader Islamic finance market

The Southeast Asian financial hub of Singapore, which is competing with Hong Kong in establishing an Islamic finance market in the region, has suffered a setback this year as only one institution issued an Islamic bond (sukuk) and was just able to raise $150mn. The Sabana Shariah-Compliant Industrial Real Estate Investment Trust issued two tranches in March and September and remained the only sukuk issuer in 2014 in a nation which strives to join a growing number of non-Muslim countries jumping on the bandwagon of the Islamic finance business which is increasingly going mainstream.

Hong Kong, on the other hand, in September successfully raised $1bn in its debut sovereign sukuk – and not only this, the Islamic bond was almost 5 times oversubscribed and will subsequently be listed on Nasdaq Dubai. It was the world’s first US dollar-denominated sukuk issued by a government with an AAA credit rating.

Europe’s financial hub of Luxembourg raised $252mn in its first-ever sukuk issue on October 1, while the UK sold the first sovereign issue from a non-Muslim country when it issued a $324mn sukuk in June. By the end of September, South Africa raised $500mn in its first sukuk issue which was 4 times oversubscribed.

So what went wrong in Singapore? Analysts say it is mainly the absence of large-scale sukuks offered by the government or government-related institutions. Like Hong Kong, Singapore has an AAA sovereign credit rating and could easily attract more Islamic investors if it would introduce some incentives and tax exemptions for sukuk investors. This is exactly what its neighbour Malaysia does, a country that dominates the global sukuk market with a current total of $72bn of sukuk outstanding despite the country’s credit rating on the Standard & Poor’s scale is six levels below Singapore’s.

Unlike Malaysia, Singapore also doesn’t have Islamic pension funds or many businesses in need for Shariah-compliant finance vehicles, even though the country’s Muslim population accounts for 15% of the total.

Finance experts say that Singapore should learn from Malaysia how to attract more Islamic investors. Apart from its strong standing in the global sukuk market, Malaysia is now also starting to develop the widely untapped Islamic private banking market in Asia. High-net-worth individuals in Asia are estimated at 2.6mn who control a total fortune of some $8.4tn and of which a significant part is seen to be Muslims who have limited choice to invest and manage their fortune in Shariah-compliant financial instruments.

“We are an established international hub for sukuk and Islamic banking, (…) thus it is possible for us to steer ahead new and innovative initiatives in this area,” said Dr Rozali Mohamed Ali, chairman of the Kuala Lumpur-based International Center for Education in Islamic Finance, at a private banking conference in the Malaysian capital held on October 1.

That way, Malaysia’s foray into the Islamic private banking market with innovative financial solutions could grab a share of rich Muslim Asian clients including the Middle East’s – people who use the services of Singapore’s huge wealth management industry which attracts foreign millionaires in droves but whose Shariah-compliant banking solutions remain somehow limited and overshadowed be the well-established traditional banking industry in the city state.

(Gulf Times / 04 October 2014)

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Singapore: Sun shining on Islamic finance, says MAS chief

Islamic finance is developing rapidly but more work needs to be done if Singapore is to fully benefit from its growth.

As experts in the field gather here for the 5th World Islamic Banking Conference Asia, the consensus is one of promising prospects, but with gaps to plug.

"The sun is shining on Islamic finance," said Ravi Menon, Monetary Authority of Singapore managing director, in a keynote address.

The central banker highlighted three promising global developments for Islamic finance, which forbids the charging of interest. First, Islamic finance has grown at double digits last year, as it has for the previous five years, despite global economic uncertainties and market volatility. Global Islamic financial assets are estimated to have reached US$1.8 trillion by the end of last year, from US$1.5 trillion in 2012.

Second, global regulatory standards and best practices are being established for Islamic finance. Common standards are good for facilitating cross-border transactions, helping to address risks that are idiosyncratic to Islamic finance, such as Syariah non-compliance risk, he noted.

Third, more countries are catering to Islamic finance.

In Asia, Indonesia has set out to significantly grow its Islamic banking sector and develop its Islamic capital markets. India started introducing Islamic financial products and services last year.

There is growing cross-border sukuk or Islamic bonds issuance within Asia as well as between the Middle East and Asia.

"Singapore has benefited from this favourable global environment for Islamic finance," he said.

Singapore is the only non-Muslim-majority country among the top 15 countries for Islamic finance. Islamic assets under management have surged nearly fourfold over the last five years to US$3.5 billion in 2012. More than 40 per cent of the Islamic assets in Singapore are managed by the asset management industry.

Fifteen banks are involved in Islamic banking, double the number five years ago; they hold about a third of the Islamic assets in Singapore. The rest of Islamic assets are in outstanding sukuk and takaful or Islamic insurance.

Singapore has had nearly 30 sukuk issuances worth S$4.3 billion to-date, compared to seven in 2013.

And more funds continue to be established here, to meet demand from clients in Asia as well as from the Middle East. Several corporations have established sukuk programmes in Singapore to tap the market over the next few years, said Mr Menon.

Still, despite the impressive growth, industry players say Islamic finance here needs more depth - in a non-Muslim-majority environment, Islamic finance has yet to really take off.

Most Islamic banks tend to be retail-heavy, as seen in the more than 60 per cent retail weightage in Malaysia and 80 per cent in Indonesia, noted Syed Abdull Aziz Syed Kechik, OCBC Al-Amin Bank Berhad chief executive.

"This is invariably linked to a domestic centrism," he said.

"While organic growth remains a reality, the gap between Islamic banks on one side and conventional regional and global players on the other is widening. Bolder moves by Islamic banking players to expand via regional mergers and acquisitions would be the key to fast-tracking capacity and building scope," he said.

Other challenges include the lack of familiarity with Syariah structures, with Middle East investors and companies venturing offshore heading mainly to London.

According to Clifford Lee, DBS Bank's head of fixed income, much education still needs to be done on structuring Syariah-compliant deals.

"In the last 12 months, people I've spoken to say Islamic financing of a plane can't be done because it serves alcohol onboard; oddly enough, it could be done for the engine," said Mr Lee.

As for sukuk issuances in Singapore, companies which have done so in order to broaden their investor base have found that the benefits of diversification weren't obvious.

"Just making a bond Syariah-compliant does not mean there are investors tripping over themselves to get it," pointed out Mr Lee. Funds in the region may not also have the mandates to invest in these products.

As commercially driven entities, most banks would be wary of the added cost from ever-increasing regulatory requirements when investing capital into a nascent market that currently offers low prospects and has limited governmental support, said OCBC Al-Amin's Syed Abdull Aziz.

He suggested the government could do more to promote the sector. The government could consider the merits of developing a strategic plan with appropriate incentives for the key industry stakeholders, he said.

"This would help to nurture a comprehensive sizeable Islamic finance sector in Singapore, taking into consideration the long-term benefits of active participation in the Islamic finance channel within the context of the overall Asean integrated economic growth framework," said Syed Abdull Aziz.

Yeo Wico, Allen & Gledhill LLP partner, noted that due to the efforts of Singapore's regulators, there is a level playing field between Islamic finance and conventional finance.

"Singapore's attraction as an international finance centre in an economically vibrant region is key to the future growth of Islamic finance in Singapore," said Mr Yeo.

The Gulf Cooperation Council (GCC) region is transforming rapidly and Singapore companies should also seize opportunities there, said Zainul Abidin Rasheed, Singapore Ambassador to Kuwait and Foreign Minister's Special Envoy to the Middle East. The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Many may not be aware of the strong development and growth phase that the GCC is experiencing now. "The main cities of the GCC will be transformed, and Singapore should be part of this transformation," he said.

(BT Premium / 04 June 2014)

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Singapore sees bright prospects in Islamic finance

SINGAPORE: Singapore's prospects in Islamic finance look bright, with more funds establishing themselves here to tap the Islamic debt market, the Monetary Authority of Singapore's (MAS) top executive said on Tuesday (June 3).

"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.

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.

(Channel News Asia / 03 June 2014)

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Singapore and Malaysia urged to collaborate on Islamic financing

SINGAPORE: Singapore and Malaysia should look for more cross-border opportunities to collaborate on Islamic financing.

This is according to speakers at the inaugural Islamic Finance Services Conference on Tuesday.

Experts said Singapore should also widen its breadth of Islamic finance products to cover the areas of retail, real estate and equities, in order to spur growth in this area.

Malaysia is the world leader in terms of Islamic financing, making up about 30 per cent of the more than US$1 trillion worth of global assets in Islamic finance.

As for Singapore, the growth momentum in Islamic financing continued unabated even when certain tax incentives expired earlier this year.

In Budget 2013, the Singapore Government said it will tax Islamic finance business at the standard 12 per cent rate instead of 5 per cent, the current rate, when the incentive expires on March 31.

Nazmi Camalxaman, associate director of Group Islamic Banking at CIMB, said: "I think Singapore has a lot of potential, especially in terms of Islamic asset management. It is untapped in Singapore. So I think if Singapore plays its cards right and chooses the products and services wisely, it will become a strong player in terms of asset management."

CIMB Singapore has secured about S$400 million worth of Islamic commercial and corporate banking deals this year.

This is almost three times the amount of Shariah-compliant deals the bank transacted last year.

Experts said Singapore must continue to play to its strengths.

Zainul Abidin Rasheed, advisor of the Middle East Business Group at the Singapore Business Federation, said: "Singapore does not have to emulate the kind of moves that Malaysia has because Singapore by itself is a very strong financial sector and we have our own strengths, but there is still room for us to see how we can best tap the growing market in terms of finance, whether from Southeast Asia or the Middle East."

Other ASEAN players are also keen to tap into that growth.

Ariff Sultan, regional director (Asia) at Ideal ratings, said: "Governments and the exchanges have worked together in trying to find a more sustainable growth of Islamic finance in ASEAN.

"There is a common working platform that ASEAN exchanges are coming together to be able to inter-trade within ASEAN and in that space, both also looking at creating Shariah-compliant equities."

Other analysts are anticipating the likes of Singapore, Thailand and Indonesia pushing out such Islamic equities through the ASEAN exchanges platform in the near future. 

(Channel News Asia / 01 Oct 2013)

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The Monetary Authority of Singapore (MAS) to boost Islamic finance in Singapore

SINGAPORE: The Monetary Authority of Singapore (MAS) is working on measures to further boost Islamic finance activities in the country.

Deputy Chairman of the MAS, Lim Hng Kiang said that includes a review of the regulatory and tax treatment to speed up the issuance of Islamic financial instruments.

The growth potential for Islamic finance in Singapore has yet to be fully realised and at the opening of the Annual World Islamic Banking Conference on Tuesday, Mr Lim, who is also Trade and Industry Minister, said Singapore will tap on its strengths to support the growth of the sector.

Mr Lim said: "Singapore can play a role in giving growth of cross-border Islamic financing an even greater push. Towards this end, the MAS is presently working with other government agencies as well as with the industry to identify and address time-to market issues to further facilitate Islamic finance activities in Singapore.

"This includes looking into providing greater clarity and certainty in the regulatory and tax treatment to expedite the issuance of Sukuk and other Islamic capital market instruments."

Industry estimates show that the assets of the global Islamic financial services industry grew by some 20 per cent on-year to US$1.6 trillion as at the end of last year and industry players said prospects ahead are bright.

A big opportunity lies in the rising connectivity between the Middle East and Asia, as well as robust growth in both regions.

Industry players said Islamic finance has the potential to offer funding for infrastructure development and lending through Islamic micro-finance.

Toby O'Connor, chief executive officer of The Islamic Bank of Asia, said "The issue is how do we get the absolute amount of assets up in the Islamic finance. When you look at growth in the global economy, a lot of the growth comes from Islamic countries that have strong inter-connectivity with one another.

"We have seen a lot of growth in Turkey, we have seen a lot of growth from Saudi as well as Malaysia and Indonesia. There is a huge bright spot for the continued growth of the industry."

Industry players said the lack of critical mass in Islamic banking as compared with conventional banking and the absence of a supportive legal framework for Islamic finance transactions could hamper growth in the sector.

(Channel News Asia / 04 Jun 2013)

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Growth potential for Islamic finance in Singapore still strong: experts

SINGAPORE: Islamic capital instruments or Sukuk have been gaining prominence in the global financial market.

More than US$11 billion worth of Islamic bonds (Sukuk) was issued in January 2013 alone, according to the 3rd Edition Sukuk report by the International Islamic Financial Market.

The momentum is set to continue, leading to more financial centres eyeing a slice of the Islamic financial pie, say experts.

They add that the growth potential for Islamic finance in Singapore is still strong.

Sukuk or Islamic bond issuances totalled US$137 billion in 2012, up from US$92b in 2011.

This is just one part of the entire Islamic finance market, which has assets of about US$1.3 trillion to date with instruments varying from Sukuk, Takaful to other equities.

And this market is set to grow at an annual rate of 25%, according to Bank Indonesia's deputy governor, Halim Alamsyah.

Yet there is still a gap to fill in the Islamic capital market.

Mr Ng Nam Sin, Assistant Managing Director (Development) at the Monetary Authority of Singapore, said: "The increased volume of issuance is still insufficient to meet the huge demand for: one, Islamic assets for investments and two: Islamic financial institutions to manage their liabilities.

"Within the Islamic capital market, there is also a need to broaden the range of Islamic capital market products available to address various investments and financing needs."

This is a gap that has not gone unnoticed by potential entrants.

Gatehouse Bank's Chief Representative (Malaysia) and Senior Advisor to the Board,

Mr Richard Thomas, said: "Practitioners talk a lot about Indonesia. A lot of excitement there.

"They talk about what's happening in Central Asia and Central Europe, the markets in South America.

"Brazil has always had an interest in Islamic finance and it has been looking at what it can do in terms of trade. For them, that would be a trade financing market.

"Canadians are also very interested. It's a universal opportunity. New Zealand is launching the first New Zealand domicile Islamic equity fund, global fund.

"There are no markets closed to Islamic finance. The most exciting ones are the ones that bring product to the market first."

Ijlal Ahmed Alvi, CEO of International Islamic Financial Market, said: "Turkey and others are now issuing at the sovereign level, which we hope (will happen in) Singapore.

"We have seen now in GCC (Gulf Cooperation Council). GCC corporates are now issuing, and you have large-cap corporates issuing Sukuk, mid-sized and small-cap Sukuk are also being issued, which is also a good development."

According to Ernst & Young's Global Islamic Banking Center, Islamic trade finance could provide new opportunities and become the preferred choice for emerging rapid growth markets (RGMs) such as Turkey, Indonesia, Malaysia, Qatar, Saudi Arabia and the UAE.

As the growth in Islamic finance continues, standard documentation has also been introduced to harmonise practices across the globe.

At the 4th Annual World Islamic Banking conference on Monday, the International Islamic Financial Market published documentation to be used in the Islamic inter-bank market between financial institutions in order to manage their liquidity requirements.

Some markets like Singapore already have an edge in that respect with the right infrastructure.

Ijlal Ahmed Alvi, CEO of International Islamic Financial Market, said: "Singapore has good regulations already in place. In our work, also, for our standard documentation, we require that.

"I hope Singapore looks into it and start using it. That's one way for Singapore to remain...a hub...so that other jurisdictions, if they can't work because of the law and if the regulatory framework is not there, then naturally they will look to Singapore. So it can maintain its hub position, which it has for conventional (banking)."

Gatehouse Bank's Mr Richard Thomas said: "The development of Islamic financial market in London, Dubai and Malaysia is a natural development of natural requirements and Singapore should be looking at its natural advantages and develop an Islamic platform around those advantages."

The global Sukuk market is set to see double-digit growth this year.

Experts say Singapore's strong regulatory environment and the depth and diversity of its capital markets will enable it to capture a bigger slice of the Islamic financing market. 

(Channel News Asia / 03 Jun 2013)

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Singapore Defends Expiry Of Islamic Finance Tax Breaks

In his welcome remarks at the Islamic Finance News Singapore Roadshow, Ng Nam Sin, Assistant Managing Director of the Monetary Authority of Singapore (MAS), pointed out that, despite the expiry of certain tax incentives, Singapore is still looking to develop the city's Islamic finance capabilities by ensuring it a level playing field with conventional financial products.

To ensure that level playing field between Islamic finance and conventional financial products, he said that Singapore "has recognized the unique characteristics of the former in both regulatory and tax treatments. We have ensured the neutrality of the rules insofar as Islamic financing is similar to conventional financing in economic substance and risks. Where the structures are unique, we have and will continue to work closely with industry stakeholders to ensure that level playing field is preserved."

Ng noted that, "over the past few years, the range of financial instruments in Singapore has expanded. Leveraging on the depth and diversity of Singapore's capital market, … the growth potential for Islamic finance in Singapore is strong. As such MAS remains committed to further grow this important sector of our financial services industry."

He confirmed that, despite the lapsing of two tax incentives for Islamic finance introduced in the 2008 Budget, which, like all Singapore's tax incentives, have a fixed tenure – in this case, of five years, Islamic finance activities will continue to be incentivized alongside conventional finance activities under Singapore's other existing schemes.

"The lapsing of the two incentives is no reflection of MAS’ continuing commitment to develop Islamic financial services in Singapore," he concluded. "Singapore’s proposition for Islamic finance must be broader than just tax advantage. Singapore’s success as an international financial sector stems from its high standards of regulation; deep and liquid capital market, the presence of international buy side players, and a critical mass of financial intermediaries with expertise to address a wide range of financing needs. It is these strengths that allow Singapore to support the growth of Islamic finance."

The 2008 Budget enhanced Singapore's Financial Sector Incentive by granting a 5% concessionary tax rate on income derived from performing specific Shariah compliant activities, from April 1, 2008, to March 31, 2013 (both dates inclusive), and also gave a 5% concessionary tax rate to an insurer on income derived from offshore Islamic insurance (takaful) or reinsurance (retakaful) business, for the same period.

Those tax incentives have now expired, and the income tax rate on Islamic finance activities will now revert to 12%, rather than the normal corporate tax rate of 17% in Singapore. According to the Government, the tax treatment of Islamic contracts remains aligned to the treatment of conventional financing contracts to which they are economically equivalent .

However, others have remarked that Singapore is now lagging behind Malaysia, which is establishing itself as the major Islamic financial hub in the region, by going beyond the provision of a level playing field in the inclusion of tax exemptions for income derived from Islamic financial products and structures.

(Global Tax News / 08 April 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

MAS says it is committed to developing Islamic financial services in Singapore

SINGAPORE: Singapore's central bank said it remains committed to developing Islamic financial services in Singapore.

Commenting about the lapse of two tax incentives for Islamic finance recently, Assistant Managing Director of the Monetary Authority of Singapore (MAS), Ng Nam Sin, said this was "no reflection of MAS' continuing commitment to develop Islamic financial services in Singapore."

"Like all our tax incentives, they have a fixed tenure and in this case, of five years. It is useful to note that Islamic finance activities will continue to be incentivized alongside conventional finance activities under our other existing schemes," said Mr Ng.

But he pointed out that Singapore's proposition for Islamic finance must be broader than just tax advantage.

He said, "Singapore's success as an international financial sector stems from its high standards of regulation, deep and liquid capital market, the presence of international buy side players, and a critical mass of financial intermediaries with expertise to address a wide range of financing needs. It is these strengths that allow Singapore to support the growth of Islamic finance. "

Speaking at an event at Singapore Management University on Wednesday, Mr Ng said Singapore has seen many sukuk (Islamic bonds) issuances since 2001, with more expected in the pipeline. Other capital market instruments such as REITS and innovative investment funds have also seen good growth.

Meanwhile, banks from the region are contributing to the Islamic financial sector in Singapore. A growing cluster of banks from the Middle East region operating in Singapore has also started to offer Islamic financial services.

Given the strong growth potential for Islamic finance in Singapore, Mr Ng said MAS will provide an environment that is conducive for growth, support talent development and continue to refine its regulatory framework.  

(Channel News Asia / 03 April 2013)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia leaves Singapore trailing in Islamic finance business

Singapore is struggling to make inroads into Islamic finance even as neighbouring Malaysia is on the cusp of another record-busting year.

Bankers say Singapore is hobbled by a lack of a domestic market for Islamic finance products, while Middle East investors are still US dollar-based and conservative.

The situation appeared to be improving when Malaysian sovereign wealth fund Khazanah in 2010 sold S$1.5 billion sukuks or Islamic bonds here, and Sabana, the world's largest Syariah-compliant real estate investment trust (Reit), raised S$664 million through its initial public offer.

Since then, the Islamic finance landscape here has been rather barren. The Republic appears to be missing out on one of the fastest-growing financial markets, with Islamic finance growing at an estimated 15-20 per cent per annum.

Islamic banking assets with commercial banks globally will hit US$1.1 trillion (S$1.38 trillion) in 2012, up a third from US$826 billion in 2010, according to figures from the 2011 Ernst & Young World Islamic Banking Competitiveness Report.

The government has played a role in promoting Islamic finance. In June, the Monetary Authority of Singapore (MAS) hosted the third annual World Islamic Banking Conference, Asia Summit, the third time it has done so.

MAS also set up the Islamic bond programme in 2009 and its wholly owned unit issued S$105 million sukuks and S$80 million sukuks for the financial years ended March 31, 2011 and 2012 respectively.

"MAS's main focus is to create a conducive environment for the sustainable growth of the Islamic financial services industry," said an MAS spokeswoman.

She noted developments in the capital market and fund management space in recent years, such as sukuk issuances to finance wakaf development, a corporate sukuk programme by a property developer, the world's first Syariah-compliant Data Centre Fund and Sabana Reit.

"The good response to these offerings indicates that there is demand for quality Syariah-compliant products," she said.

Bankers say Singapore needs a domestic market for Islamic finance products to kick-start demand.

Singapore may be a vibrant financial centre with over 700 financial institutions, including a growing cluster of Islamic banks from the Middle East and strong trade flows with the six-member Gulf Cooperation Council (GCC) countries, but it loses out to Malaysia's large home-grown market.

The GCC, which is Singapore's sixth-largest trading partner, consists of Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the United Arab Emirates. Last year, bilateral trade flows between Singapore and the GCC grew over 40 per cent to S$62 billion.

Rafe Haneef, chief executive of HSBC Amanah Malaysia Bhd and managing director of Global Markets Amanah, said Malaysia has a large volume of Islamic investors looking for Syariah-compliant investments like sukuk compared to the Singapore market.

"Along with Islamic investors, Malaysia has a large number of Muslim- owned companies, most of which are looking for Syariah-compliant financing and sukuk issuance. Again, there is not a high demand for such financing in the Singapore corporate environment," said Mr Haneef.

Malaysia accounts for 60 per cent of global sukuk deals.

Mr Haneef said the global sukuk market was expected to expand to US$44 billion this year. For the first half of 2012, the global sukuk market was US$20.5 billion, up from US$15 billion a year earlier.

Another problem for Singapore is that conservative Middle Eastern investors tend to invest only in familiar companies and prefer to make those investments in US dollars.

Mohd Ismail Hussein, Maybank Singapore's head of Islamic banking, said the expected demand from Middle East investors did not materialise because of economic and liquidity issues at home.

Another factor was "their preference for rated, USD debt issuance with good yields, which are scarce here", he said.

Still, this hasn't stopped bankers here from trying to venture into the business.

Sim Buck Khim, OCBC Bank's co-head of capital markets, said the challenges impeding the development of Islamic finance in Singapore are multi-faceted.

"We believe one of the key reasons is that conventional banking is more readily available and easier to tap at the moment. The additional 'cost' - in terms of time and education for Islamic products - may also be seen as another factor that hampers its appeal to issuers as well as borrowers in general," he said.

"With continual efforts by banks and other stakeholders such as central banks, rating agencies and law firms to raise awareness, market receptiveness will grow, and consequently we may see more issuance in the future."

"This year, we've had one or two non-deal roadshows," said Clifford Lee, DBS head of fixed income, on bringing investors and issuers together.

"We continue to engage GCC investors on how we can best make ourselves relevant," he added.

DBS is the market leader in the SGD bond market and handled Khazanah's S$1.5 billion sukuk deal in 2010.

(Asiaonebusiness / 21 August 2012)

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Monetary Authority of Singapore (MAS) underlines key challenges for Islamic finance to continue thriving

SINGAPORE: Monetary Authority of Singapore (MAS) managing director Ravi Menon has underlined key challenges for Islamic Finance to continue thriving.

“Islamic finance has come a long way.

“As it embarks on its next phase of growth, the industry must overcome the challenges posed by slower growth and global deleveraging, and build scale and reach critical mass.

“This requires financial institutions, regulators, and international standard setting agencies to work closely together,” he said in his address at the opening of 3rd Annual World Islamic Banking Conference: Asia Summit, here yesterday.

Ravi said Islamic finance has shown remarkable resilience during the last five years – perhaps the most challenging economic environment in the post-war era.

He said the industry has grown by an estimated 20 per cent annually in the last five years to reach US$1.3 trillion in total assets in 2011.

“Islamic banks have grown both in number and in scope. But the sustained growth of Islamic finance is in no way guaranteed. For Islamic finance to continue thriving, the industry has to overcome a few key challenges.

But in every challenge, there is also opportunity,” he stressed.

Ravi pointed out the clear and present danger to all financial activity, including Islamic finance, is the risk of contagion from an escalation of the eurozone crisis.

He said Islamic finance is closely intertwined with underlying economic activity and will be affected by the impact of slower global growth.

Contagion from the eurozone has already curtailed economic growth and capital inflows to many emerging economies where Islamic finance has taken root.

“Potential spillovers from an escalation of the Eurozone crisis could lower output in the Middle East and North Africa region by about 3.25 per cent relative to baseline, the largest spillover effect for any region outside Europe.

“But Islamic finance has a window of opportunity in the current climate of deleveraging in the global financial system.

With its strict prohibition on excessive leverage, Islamic finance has been spared the worst of the financial crisis,” he said.

Ravi pointed out that Islamic banks are well positioned to reach out to new customers who are in need of financing as many global institutions pull back on their lending due to the need to repair their balance sheets.

He said Islamic finance should diversify into growth areas such as trade and infrastructure financing, where demand is still strong, especially in emerging economies.

With a focus on supporting real productive activities, Ravi said Islamic finance is naturally compatible with trade and infrastructure development.

He said tapping these sectors also brings about greater diversification benefits, especially for Islamic institutions which have been hurt by their significant lending exposure to the real estate sector.

A second factor that Islamic finance will have to contend with, the central bank chief said, is the ongoing global regulatory reforms.

He noted the scale and scope of these reforms are probably unmatched in recent history.

“Islamic financial institutions will have to devote considerable resources to meet the new international standards.

But there are certain inherent characteristics of Islamic finance that will stand it in good stead in the emerging regulatory environment.

Ravi said Islamic finance is also well placed to meet the increased “return-to-basics” investor demand.

Following the global financial crisis, investors have become more averse to the unknown risks embedded in complex financial instruments.

Islamic finance, he said with its stronger emphasis on transparency, price certainty and risk-sharing, can benefit from this renewed demand for more basic investments, from Muslim and non-Muslim investors alike.

“The third, and perhaps most important, challenge that Islamic finance must overcome is its present fragmented state.

Islamic finance currently suffers from low economies of scale.

The overall size of Islamic assets is still less than one per cent of the global financial system.

“Being smaller and relatively young, Islamic finance currently offers fewer product choices for consumers and less comprehensive risk management options for institutions.

Cross-border investment flows are also constrained by differing interpretations of permissible transactions under Shariah principles,” he said.

He said the isolated pools of Islamic liquidity in each market restrict opportunities for more efficient allocation of capital across consumers, industries, and jurisdictions.

Ravi suggested that Islamic finance must become more integrated with the global financial system.

He pointed out the industry must expand beyond its traditional markets to include a wider range of financial institutions, investors and consumers.

This means Islamic finance must strike roots in key international financial centres of the world.

He said these centres can contribute to Islamic finance in several ways, including market liquidity, capabilities in global financial markets and opportunities for interaction and collaboration.

As Islamic finance gains prominence, he said conventional financial institutions increasingly want to be involved to tap these opportunities.

He said financial centres like Singapore serve as intersecting nodes where Islamic financial institutions collaborate with their conventional partners to jointly grow the industry.

“By applying the same regulatory framework to both conventional and Islamic financial institutions, Singapore aims to encourage financial institutions here to grow their suite of products and services for the Islamic finance industry,” he added.

(Berneo Post Online / 06 June 2012)

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www.alfalahconsulting.com
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