Why has Islamic finance stalled in Singapore?


Chris Wright

Singapore has everything a market hub needs, but has not built on its regulatory environment. Order Sultan Mosque in Singapore It is 14 years since Singapore’s then senior minister Goh Chok Tong announced the government’s intention to make the island state a hub for Islamic finance. The years since have seen a revamp of the regulatory framework, tax equalization laws and membership of global Islamic finance bodies, but industry figures still talk about Singapore in terms of potential rather than progress.
Adnan Chilwan, DIB “Singapore has not really capitalized as it should have done given the strength of its financial system,” says Adnan Chilwan, group chief executive officer of Dubai Islamic Bank (DIB), speaking at the IFN Forum Singapore, at a panel moderated by Euromoney on Thursday. “When we were looking at expanding our operations in Far East Asia, we were contemplating between Malaysia and Indonesia, and to be honest Singapore was not on the list,” he says. “It’s not because it does not have a stable financial system: it has a lot of ability, including the required infrastructure and regulation, but it does not have the intention of really tapping Islamic wealth and liquidity.”
He adds: “We need to wake everyone up and tell them: if you really focus on Islamic finance, you will very quickly take the lead, and not allow players from behind to come and overtake you.” Stalled Why hasn’t Singapore made the best of its potential? For a time, it seemed it was doing so. There have been many Islamic landmarks in the capital markets, including the Sabana Reit, the world’s first and largest Shariah-compliant real-estate investment trust; sukuk funds from managers including Franklin, HSBC and Maybank; more than 30 sukuk; and commodity murabahah from Olam. However, most of these landmarks are from a decade ago, and there is a sense that things have stalled.
There has never been, for example, a sovereign sukuk from Singapore or a state vehicle, unlike, for example, Hong Kong. Marie Diron, Moody’s “Other sovereigns around the world have established their presence in that market, even those with relatively limited size or local demand, like Hong Kong,” says Marie Diron, managing director in the sovereign risk group at Moody’s Investors Service. Singapore has hosted sukuk for other countries’ state vehicles, notably Malaysia’s Khazanah, but not its own.
Singapore also doesn’t have a fully fledged Islamic bank – though it used to. Islamic Bank of Asia was launched by partners including Singapore’s DBS in 2007, but lasted only eight years before DBS announced it could not achieve economies of scale for the bank and would close it down within two to three years. DBS instead offers Islamic-compliant banking products directly. Arguably, this doesn’t matter. “In order to become an Islamic financial hub you don’t necessarily need to have an Islamic bank operating,” says DIB’s Adnan. —Courtesy: Euromoney

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