Malaysia eyes Islamic pvt banking

BANGKOK: Malaysia plans to develop its Islamic wealth management and investment fund services in a bid to attract overseas investors and tap the $1tn global market for products that comply with the religion’s Shariah law.

There are 16 Islamic banks licensed in Malaysia, including four that will start offering financial services in 2008, Malaysia’s central bank said in a report in Kuala Lumpur today. The nation had 11 Islamic banks last year.

Bank Negara Malaysia will encourage “further innovation in products and services to support specialized Islamic fund and wealth management services”, the central bank said.

Islamic banks operating in the Southeast Asian nation “are positioned to take on a more pivotal role in the development of the Islamic capital markets.”

Tax breaks and incentives for Islamic financial products have lured investors such as Kuwait Finance House, the world’s second-largest Islamic bank, and Qatar Islamic Bank.

Malaysia also introduced in January an 840mn ringgit ($257mn) Shariah-compliant exchange-traded fund, the first of its type in Asia.

The wealth of high net-worth individuals in the Asia-Pacific region may grow by 8.5% a year to $12.7tn by 2011, the second-fastest increase after the Middle East, Merrill Lynch and Capgemini said in a 2007 report.

CIMB Group, the arranger of the most Islamic bonds worldwide last year, started Islamic private banking services in Malaysia last year for wealthy Muslims who invest in accordance with their faith, Badlisyah Abdul Ghani, chief executive officer of CIMB’s Islamic banking unit, said in January.

Malaysia, where 60% of its 27mn people are Muslim, is the Asia-Pacific region’s Islamic finance hub. Newcomers such as Singapore, Hong Kong and Japan are also vying for a market estimated by the Kuala Lumpur-based Islamic Financial Services Board to expand to $2.8tn by 2015.

“Closer linkages are also being fostered with other Islamic finance centers to promote” Shariah-compliant services including agreements signed with Dubai and Qatar financial authorities, the central bank said.

Islam bans the payment and receipt of interest, prohibits investment in businesses such as gambling and alcohol and stresses profit sharing.

Malaysia, where companies sold nearly two-fifths of Islamic bonds globally last year, expects more overseas borrowers to sell such debt as it eases regulations and as Gulf investors look to Asia, the nation’s Securities Commission said February 6. Japan and China are showing “interest” to sell Islamic bonds, it added.

The global Islamic bond market stood at $82bn last year, growing an average 40% a year from $336mn in 2000, the central bank said. Global sales rose to $30.8bn in 2007 from $18.1bn a year earlier, data show.