The Islamic financial oasis

KUCHING: With many innovations happening in the nation’s Islamic financial sector, it is just natural for the industry to attract many foreign players into the market.

With the launch of Bursa Suq Al Sila on Bursa Malaysia in August 2009, the nation established the world’s first shariah-based commodity trading platform – spurring further foreign interest in the country’s Islamic financial industry.

However, the boost was triggered even earlier than that, initiated by the release of the Financial Sector Masterplan (FSMP) in 2001. Thenceforth, the sector experienced a rapid revolution in foreign participation, which saw the issuance of dedicated Islamic banking licences to three foreign groups – led by Kuwait Finance House Malaysia Bhd (KFH Malaysia).

“When we first started, we were in corporate investment banking,” said KFH Malaysia’s chief executive officer Jamelah Jamaluddin.

“In our 2010 business plan, we want to go into the retail market as well as other business areas such as fund management, private equity, treasury and commercial banking,” she added.

Renowned as the first woman to helm the nation’s largest foreign-based Islamic bank, Jamelah came into the industry at a time when KFH Malaysia was mired in internal issues. Ratings agency RAM Rating Services Bhd discontinued its assessment on the bank in June last year, due to an ongoing due diligence status audit.

Jamelah, who took over the captain’s post at KFH Malaysia in February, had earlier instructed several personnel to go on leave pending internal investigations into transactions and contractual arrangements undertaken over the years.

“We will concentrate on recovery measures for this year (2010) as well as business growth, within our retail sector as well as our investment banking segment,” she spoke to reporters last April in response to the matter. Concurrently, she also announced KFH Malaysia’s ‘Five-Year Plan’, slated for the bank’s realignment to be in parallel with the industry.

“The plan includes aggressive NPF (non-performing financing) provisioning and credit control, enhancing credit risk management, improving asset quality as well as being more focused on the bank’s business growth,” stated Jamelah.

Fast-forward, the plan seemed to be working. In August, the Malaysian rating Corporation Bhd affirmed the bank’s long and short term ratings at AA+/MARC-1.

“The focus still remains at taking a prudent approach on assessment and provisioning, ensuring that the bank will have a clean balance sheet and start moving ahead with its new business propositions,” said Jamelah.

KFH Malaysia illustrated just one of many foreign names having set up their operations in the country. However, the ‘attraction’ did not go one-way, as many homegrown Islamic financial players had already extended their reaches abroad, especially in the ‘yet-to-be’ tapped Asean markets.

In September, Maybank Bhd (Maybank) announced plans to expand Islamic finance business in Indonesia – home to the world’s largest Muslim population – with a projection to increase its network there from 290 to 450 eventually. Last month, it launched full-fledged Islamic bank Maybank Syariah Indonesia (MSI), formerly known as PT Bank Maybank Indocorp.

“Maybank is determined to become the number one Islamic bank in Asean,” its chief executive officer Datuk Seri Abdul Wahid Omar told AFP in September. Prior to MSI, Maybank already had about 43 per cent stakeholding in PT Bank Internasional Indonesia Tbk.

Meanwhile, CIMB Islamic Bank Bhd’s (CIMB Islamic) chief executive officer Badlisyah Abdul Ghani stressed that Malaysia could not be a global Islamic financial oasis, if homegrown Islamic banking players remained domestic.

“CIMB Islamic was the first Malaysian-based Islamic finance player to go regional and global. Presently, the bank undertakes its business in 11 countries, while widening its wings to other Asean countries in tandem with the group’s expansion.

“We are seriously looking at developing the business in Indonesia where we have a licensed Islamic window operation; PT CIMB Niaga Syariah. We plan to introduce more products there in the coming years.”

Looking at Indonesia, Badlisyah noted it was the one country that had really put ‘serious’ efforts towards putting up the right framework for Islamic finance.

“They (Indonesia) have come out with syariah ETFs (exchange traded funds) and sukuk law, as well as mighty links with both syariah and finance ministries there; concurrently making sure that their framework from a regulatory perspective is improved, in order to facilitate Islamic finance better.

“It shows unequal commitment that we cannot see anywhere else, except here in Malaysia. It is in our interest that their framework are in place, thus we would gladly work together with the regulators there to ensure this,” underlined Badlisyah.

Interestingly enough, the nation’s maiden homegrown full-fledged syariah-compliant bank, Bank Islam Malaysia Bhd (Bank Islam) had yet to ‘set sail’ onto foreign shores. This, however, did not mean that there would not be any plans to go abroad, according to its managing director Datuk Seri Zukri Samat.

“It (oversea expansion) has always been part of the pillars within Bank Islam’s Stability Growth Plan (SGP) for the period from July 1, 2009 to Dec 31, 2012. We are still looking, especially at this part of the Southeast Asian region,” he told The Borneo Post recently. “While we do not have any specific discussion with regards to the Middle East markets, but with the right party, we will consider possible partnerships.”

Moreover, Zukri underlined that Islamic banking should not be viewed in the same light as that of conventional banking.

“You need to have an Islamic money market. As such, we cannot just go and expand blindly overseas. Those countries should have the regulations and infrastructure to accommodate Islamic banking.

“In this region, however, nations like Indonesia, Singapore and Brunei have such accommodations. Still, they are not as conducive and comprehensive as what we have here in Malaysia,” he pointed out, adding that Malaysia was well-equipped with a full array of infrastructure to cater for the Islamic banking system.

“Obviously, this has aided our direction towards being the world’s premier Islamic financial centre – by having all the ingredients ready for both domestic and foreign participants,” he concluded.

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