Monetary Authority of Singapore
Ladies and Gentlemen,
1 Good morning. I am delighted to be here with such a distinguished group of scholars and practitioners of Islamic Finance. I would also like to take this opportunity to bid a warm welcome to our foreign guests and hope that your stay here will be productive and enjoyable.
Current Situation
2 Islamic Financing has grown significantly since the 1970s, when the first Islamic commercial bank, Dubai Islamic Bank was opened. It is estimated that there are now about 300 Islamic financial institutions with over US$250bn. of assets and it has been growing at between 10-15% annually. Furthermore, there is another estimated US$200bn worth of assets held in Islamic windows of conventional banks.
3 Today, investors are able to place their savings in a wide range of Shar'iah compliant funds, including equity, commodity, real estate and Ijjarah (or leasing) funds. The growing number of global banks entering this market is testimony of the unabated interest in the developments of Islamic Finance. While real estate and private equity investments continue to be the primary choice of investors who prefer to invest under Shar'iah law, we are now seeing an increasing wide offering of more innovative Shar'iah products, including exchangeable / convertible Sukuks, commodity-linked certificates, equity-linked notes and structured FX linked-products. In the capital markets, the global issuance of Sukuks has grown 5-fold over the past 3 years, with some US$10 billion expected to be issued this year. Commodity Murabaha investments have also grown to be increasingly common, with such investments forming about 70% of Islamic short and medium-term money market transactions in the Middle East.
4 The growing economic linkages between the Middle East and East Asia are of great importance. As two of the most dynamic regions in the world, substantial wealth has been generated, opening up huge opportunities for investment and financing in these regions. A study by the Aseam Bankers has estimated that about US$1 trillion worth of total wealth available for investments are residing in the Gulf region, waiting to be harnessed. The increasing trade flows between the Middle East and Asia can only mean increased needs for financial institutions to come forth with more financial solutions to meet the financing and risks management needs of Middle Eastern entities expanding into East Asia.
Developments in Singapore
5 Singapore as an international financial centre is keen to play a role in the development of Islamic Finance through leveraging on its existing critical mass and capabilities in wealth management, project financing and trade financing. To this end, MAS work with the industry to constantly review our tax and regulatory framework to ensure a level playing field between Islamic and conventional financing. This is to support and facilitate financial institutions who wish to provide a range of Islamic products and services to meet the needs of their clients and investors.
6 We have reviewed our policies to ensure that Islamic finance is not disadvantaged vis-à-vis conventional finance. For example, we have waived the double imposition of stamp duties on real estate financing which have been structured under Shar'iah law. Concessionary tax treatment for Sukuks is also similar to what we have done for conventional bonds.
7 Regulatory wise, we have worked proactively with Financial Institutions in allowing Islamic Finance transaction under existing regulation. For example, in 2005, the MAS announced that banks in Singapore will be able to offer Murabaha financing in Singapore. This exemption is granted in recognition of the product's fundamental characteristics as a financial product, no different from conventional transactions.
8 MAS is also now a full member of the Islamic Financial Services Board (IFSB) and we are currently part of the IFSB Supervisory Review Process Working Group as well as the IFSB Islamic Money Market Taskforce. All these put together, along with Singapore's open markets, efficient infrastructure and transparent regulations allow Singapore to further develop itself as an international financial centre offering Islamic Finance possibilities.
Going Forward
9 Going forward, the growth of Islamic finance in Singapore hinges on the commercial viability of such products. While understanding that there exist different interpretations of Shar'iah products in the industry, MAS will prefer to leave it to the internal Shar'iah boards of the various banks to make this decision. MAS will continue to work closely with industry players to allow the flourishing of Islamic Finance within our existing legislation.
10 The ample liquidity in the Middle East signals huge opportunities for further growth and innovation in Islamic finance, which Singapore could play a role in. The expertise available here as well as the vast talent base in conventional products such as asset management will be a value add to the global development of Islamic Finance. I will encourage all of you present here to continue to engage my colleagues and myself to innovate and come up with newer Islamic Finance solutions.
Conclusion
11 On this note, let me thank the organizers of Islamic Finance Asia 2007 for inviting MAS today, and we welcome your suggestions and feedback on areas where we should look into. I wish you all fruitful discussions at this conference and a productive stay in Singapore.
12 Thank you.