Singapore may be a global financial centre, but its Islamic finance industry is still very much a work in progress.
Key industry players say they see an increase in interest and demand, yet Singapore’s retail Islamic finance portfolio is missing home financing and insurance, while investment options remain few. At the heart of the industry’s challenges is increasing the level of awareness about Islamic finance for strong retail demand to support new products.
Norzulkarnien Nor Mohamed, Head of Islamic Banking at Maybank Singapore, told Zawya customers ask for products that are not provided by the bank. “The key Islamic financial solutions requested by individuals include home financing, credit cards and takaful.”
Maybank currently offers the widest range of Shariah-compliant banking products in Singapore and primarily competes with fellow Malaysia-headquartered CIMB in the retail Islamic banking sector.
According to Nor Mohamed, the bank’s Islamic business has been expanding. “Maybank Singapore’s total Shariah-compliant financing and deposits grew at compounded annual growth rates of 4 percent and 11 percent, respectively, over the last four years, from 2017 to 2021.”
No Takaful, Islamic Home Financing
Takaful was largely pulled from Singapore when HSBC downscaled its Islamic subsidiary Amanah globally in 2012 and ceased retail operations in the country. Currently, the only takaful product available is for travel health services for hajj and umrah pilgrims, offered by ST&T International and UOI.
The potential of home financing has kept it at the top of the Islamic banking industry’s agenda for more than a decade. Home financing is a substantial pot in Singapore, where home ownership is around 90 percent.
Outstanding bank loans for public and private housing reached S$210.23 billion ($156.39 billion) in the third quarter of 2021, according to preliminary figures from the Monetary Authority of Singapore.
Nor Mohamed said that Maybank sees “decent business potential, as home ownership is prevalent in Singapore, and owning a residential property is a stable fixed asset class investment for property investors.”
Islamic home financing would require the approval of the Central Provident Fund (CPF) Board and the Housing and Development Board (HDB). A key challenge is the type of underlying Islamic contract used that will align with the CPF Act in regard to the type of assets that CPF savings can purchase. The CPF is a mandatory social security savings scheme where funds are designated for individuals’ home purchases, retirement and healthcare. A percentage of these savings can also be invested in approved funds. HDB public housing accounts for 78.7 percent of Singapore’s households, underlining the importance of engaging with the HDB Board for discussions about Islamic financing.
Anecdotal reports indicate a rise in demand for Islamic home financing from Muslims, and the matter is current enough to recently prompt a question from a Member of Parliament, placing the issue at a prominent national level.
The Minister for Manpower, as the head of the parent ministry of the CPF Board, responded in January: “If financial institutions approach relevant authorities to allow the use of CPF for such products, the CPF Board and authorities will assess such proposals, taking into consideration the need to protect CPF members’ retirement savings.”
Maybank Singapore confirmed that it is in talks to provide Islamic home financing facilities. “We are engaging all stakeholders in the hope of a successful launch in due course,” Nor Mohamed said.
Investment Options
Sani Hamid, who leads Financial Alliance’s dedicated Islamic Wealth Advisory (FAIWA) division, also has Islamic home financing on his wish list for Budget 2022, that it is second to getting a CPF-approved Sukuk Fund for investment.
“There is currently only one Shariah-compliant fund which is CPF-approved,” said Hamid, referring to the Franklin Templeton Shariah Global Equity Fund, one of 82 approved funds as of February 3.
Singapore’s banks hold assets of around $2 trillion, but the asset management industry is bigger: $3.5 trillion in 2020. Singapore has more assets under management (AuM) than the world’s Islamic finance industry as a whole, which Refinitiv estimates at $3.374 trillion in 2020.
There is no breakdown of Shariah-compliant AuM, but Hamid stressed there are limited options. In Financial Alliance’s experience, the key to growing Islamic investments at the retail level is CPF funds, as not a lot of people invest using cash. For those with cash, FAIWA offers access to a gold mining fund, and high-net-worth individuals can park their money in a private equity fund targeting the UK healthcare sector that received approval from Malaysia’s International Shariah Research Academy for Islamic Finance.
Alternatives include pockets of waqf; Islamic peer-to-peer crowdfunder Kapital Boost, which offers short-term investments via funding SME campaigns; and stocks that can be referenced from indexes such as the FTSE SGX Shariah Index Series. .”—Zawya News
