Singapore sees Bright Prospects in Islamic Finance

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.

"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.

Islamic banking assets in these six countries are set to cross US$662 billion in 2013.