Zeti: Strategic Alliances Can Catalyse Global Potential Of Islamic Finance

HONG KONG-Malaysia's top banker said Tuesday strategic alliances among Islamic finance players will help realise the global potential of the industry in the wake of increasing interest by several financial centres including Hong Kong in Islamic finance.

Addressing a two-day Islamic finance seminar here, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said this will lead to a more integrated international Islamic financial system and tap the immense markets of both Muslim and non- Muslim communities.

She said conventional financial institutions can also work together with Islamic financial institutions to raise sukuk or Islamic bonds or structure other Islamic products which are syariah-compliant.

"The wide ranging availability of such assets and the massive financing needs of the new growth areas in the region such as in China, Indonesia and Vietnam will be attracting funds from surplus economies such as from the Gulf economies," she said in a keynote address on "Towards Gaining Global Growth Potential of Islamic Finance."

Noting that the setting up of an Asian Sukuk Fund could be explored as an extension of the Asian Bond Fund, she said: "Potential issuers may leverage on Malaysia's sukuk platform and its strength as the world's largest sukuk issuance centre with over US$56 billion or 62 percent of the world's sukuk issues."

The sukuk market is the fastest emerging form of Islamic finance, increasing at an annual average rate of 40 percent spurred by high levels of surplus savings and reserves in Asia and the Middle East.

In Malaysia, sukuk bonds had surpassed conventional bonds for three years running with an annual turnover of RM135 billion.

Dr Zeti said Malaysia, with three decades of Islamic finance experience, is entering a new phase to develop the country as an international Islamic financial centre and become more integrated with the international financial system.

"This aims at strengthening our economic and financial linkages and thus promote greater trade and investment across borders," she added.

She was optimistic that Islamic finance in 2008 and beyond will remain positive despite the challenging global environment because Islamic finance has the ability to meet changing economic demands apart from being cost competitive and having well-supported legal and regulatory frameworks.

"Going forward, Islamic finance as a new industry requires more initiatives to expand the horizon of business parameters and innovative product offerings.

"There is a need to conduct further in-depth research on syariah issues relating to risk mitigation, liquidity management and hedging," she said.

Hong Kong is among the latest to announce its foray into Islamic finance and yesterday, its Chief Executive, Donald Tsang, said he will head a mission to Kuwait, Saudi Arabia and United Arab Emirates this month.