Singapore set to boost Islamic finance – monetary authority

Singapore has its eyes set on boosting Islamic finance and has created a “level playing field” for Shariah products and conventional funding tools.

The city state now provides tax neutrality between conventional and Islamic financing by removing hurdles such as stamp duty, Monetary Authority of Singapore (MAS) deputy managing director Ong Chong Tee said in an interview with Gulf Times. “We are providing general sales tax exemption for financing based on the Murabaha structure,” he said.

Singapore’s financial sector regulator MAS now allows the city state’s banks to offer Murabaha financing, investment products and deposits.

The city state recently licensed DBS Bank to set up Singapore’s first Islamic bank as a joint venture. The Islamic Bank of Asia, with a paid up capital of $500mn was incorporated in May 2007, and its major shareholders include DBS, Singapore’s largest bank and some prominent businessmen based in the GCC region.

“We are the only non-Islamic country to be a full member of the Islamic Financial Services Board. Singapore will play host to the Board’s 6th Annual Summit in May 2009,” Tee said.

Central bank governors, top securities and insurance regulators officials as well as major private sector participants are expected for the meeting, which will discuss key issues and developments on the regulation and supervision of Islamic financial services.

Tee said Singapore has witnessed a rising interest in Islamic finance in the last few years. Although volumes are still small in comparison to conventional products, Islamic finance industry is growing year after year.

Some forms of Islamic financial services are already available in Singapore. They include Islamic deposits, funds and Takaful insurance.

“We are developing expertise in Islamic banking to meet the growing demand for Shariah-based financial products,” the Tee said.
He said Singapore’s prominence as global financial centre was attested by the fact that the city state is now home to over 600 financial institutions. Besides banks, insurance firms, finance companies, fund managers and financial advisors, they include major players in securities, insurance brokerage, futures trading and corporate finance.

“Our financial sector now accounts for 11.2% of the GDP, up from 5% in the 70s,” Tee said.

In August last year Singapore’s banking assets stood at S$1.79tn compared with S$36bn in 1974. The stock market capitalisation in October 2007 was S$824bn compared with S$14bn in 1975.
Singapore’s average forex daily turnover in September 2007 was S$344bn compared with S$0.8bn in 1974. The country is the world’s fifth largest forex trading centre and Asia’s second largest OTC derivatives trading centre.

Tee said Singapore has one of the fastest growing local currency debt markets. The total outstanding debt securities have tripled in size since 2000 with foreign issuers accounting for 25% of the market.
Assets under management totalled S$891bn in 2006 compared with S$18bn in 1990.

Singapore Government Securities Market was worth S$96.3bn in October 2007 compared with just S$4.5bn in 1987.

Tee said Qatar and other Gulf investors could cash in on the asset management capabilities of leading institutions in Singapore. The county is now an important centre for institutional fund management. Assets under management in Singapore have seen a 20% to 30% growth in the last five years.

Singapore has also emerged as the Asia-Pacific insurance hub, Tee said. Some 20 of the top 25 global reinsurers are currently based in the city state. It is the largest Asia-Pacific domicile for captive insurance companies.

“We also provide a rich mix of insurance intermediaries and ancillary service providers,” Tee said.

He said investors in the GCC region could leverage on Singapore’s strengths in asset management, project and trade financing.
“I am delighted some GCC banks including QNB and Doha Bank through their Singapore representative offices were contributing to increasing bilateral trade between the city state and the region,” Tee said.