Islamic finance has strong growth potential in S'pore

SINGAPORE : With a supportive regulatory and tax framework, it is only a matter of time before Singapore becomes a major player in Islamic finance, according to experts.

Industry watchers said Singapore also stands to gain from its proximity to large Muslim populations in its neighbourhood.

They said sukuk, or Islamic bonds, and Shariah-compliant real estate investment trusts are two products that have strong growth potential in Singapore.

Malaysia’s CIMB is among nine international Islamic financial institutions that are now operating in Singapore.

So far, CIMB Bank in Singapore has sponsored four sukuk issues worth more than S$1.5 billion.

Devan Selvanathan, director of Debt Capital Markets & Syndicate, CIMB Bank Singapore, said: “We have the largest market share in Singapore for sukuk structuring, in understanding sukuk structure, in facilitating the tax treatment and in sponsoring with issuers the benefits of coming to the market.

“And in general, looking to create within Southeast Asia and the region an Islamic financial marketplace that is competitive and that can bring overseas issuers into Singapore.”

One reason behind this success is the Monetary Authority of Singapore’s efforts to create a supportive framework for a competitive Islamic finance landscape here.

Among the incentives that the regulator has provided are reduced taxes for Islamic transactions, waving of stamp duties for real-estate financing, and a 5 per cent concessionary tax rate for Islamic financing.

These have paved the way for the introduction of more Islamic bonds and the entry of Sabana REIT, which last year raised S$666 million in its initial public offering and is the only Syariah-compliant REIT here.

Observers said Singapore’s sophisticated capital markets will see more of these products.

Mohammad Faiz Azmi, Global Islamic Financial Leader, PricewaterhouseCoopers, Malaysia, said: “It’s big demand for good quality credit instruments. That, I think, is where there should be more emphasis, meaning that we should be looking at the big blue chip companies around the region.

“And maybe, Singapore should be trying to attract them to try and do the issue out of Singapore because the more triple A and double A type of credit instruments you have out there, the more likelihood there is of people buying them.”

But one challenge that the industry faces here is lack of investor awareness about Islamic finance.

Andrew White, director of International Islamic Law & Finance Centre, SMU, said: “We need a greater degree of awareness as to what these products are, and the structures and facilities that are being offered by financial institutions, as a lot of people just don’t understand.”

Analysts said such education should also involve getting a commonality of view on Islamic standards.

Mr Mohammad Faiz said: “The difficulty with religion is that everyone is an expert. And therefore, you do need that discourse to make sure that people judge things with proper knowledge and not based on their own prejudices.

It may be a while before Singapore can rival Malaysia as a global Islamic financial hub, but analysts said the Republic is certainly on the right track.

Syariah-compliant products now account for about 10 per cent of the debt issues in Singapore. Debt issuance here totalled S$25 billion last year, compared with US$94 billion worth of sukuks sold in Malaysia last year.

Mr Mohammad Faiz said: “It’s a big market. We do have some natural advantages, but we also recognize that we don’t have a developed country status as Singapore.

“And I think our feeling about this is to work collaboratively as opposed to working competitively. So if you talk about progress, we do retail, which Singapore does not do.”

CIMB’s Devan Selvanathan said: “I think the opportunities are very much in educating both the issuance of structures by corporate, in educating those corporates as to the benefits of Islamic finance and in understanding that they can access a unique investible audience outside of the conventional investor space so they could potentially market their debt instruments into GCC countries, into the other Muslim investible authorities in the region.”

Mr White said: “I think the Islamic wealth management obviously has a lot of potential for growth and strength. It’s an area where we can be a global good leader in Singapore.”

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1118689/1/.html

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