Situs resmi Adiwarman A. Karim Singapore needs more Islamic banking expertise
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Singapore needs more Islamic banking expertise

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Republic should also play to its strengths, such as financial engineering, to offer niche products.

Valeriw Law | This e-mail address is being protected from spambots. You need JavaScript enabled to view it | Weekend Today | May 21 - 22 . 2005

SINGAPORE has the driving ambition but lacks the skills to tap on the burgeoning Islamic banking market, experts say.

Its banking professionals need more training in Islamic banking laws and financial engineering skills, before Singapore can truly play a major role in attracting Islamic funds, said Mr. Adiwarman Azwar Karim, an adviser to the Indonesian central bank.

Traders in the futures pits of the Singapore Exchange.
Singapore should leverage on its financial engineering
capabilities by developing high-end structuerd
products such as asset securitisations.
Reit structures and commodity funds to attract Islamic
capital, said Mr. Mahboob Mahmood, who has help
structure cross-border financial deals in Malaysia,
Pakistan and the United States.

"The Infrastructure is here, but Singapore professionals lack knowledge in sharia banking systems,” said Mr. Adiwarman Azwar Karim, in an interview with TODAY.

It is no secret that Singapore is eyeing the lucrative Islamic banking market, which is estimated to have grown between 10 and 15 per cent annually over the past decade – a rate that far exceeds that of conventional banking.

The US$260 billion ($430 billion) in assets currently under management may be small but the potential market is huge. Private assets in the Middle East alone are estimated at US$800 billion and are mostly invested in conventional products or kept in cash.

But while Singapore deliberates its strategies to attract Islamic bank to its shores, Malaysia and Indonesia are already going all out to woo Arab investors.

Malaysia is becoming an authority in this area, and recently accelerated the process of issuing Islamic banking licenses to compete with Bahrain and other Persian Gulf states. It now allows overseas investor to hold stakes of up to 49 per cent in Islamic banks, compared with 30 per cent in commercial banks.

In Indonesia, top banks have already announced their intentions to tap this market, with HSBC Holdings said to become the first foreign bank in the country to provide consumer loans and financial services that comply with Islamic law.

To stand out from its rivals, Singapore needs to focus on niche area of the Islamic banking market, said Mr. Mahboob Mahmood, a former partner with law firm Sidley Austin Brown & Wood.

Instead of trying to lure Islamic capital away from other financial centers such as Zurich and New York, Singapore should focus and helping government and institutional clients to structure and deliver suitable financial instruments that suit the Middle Eastern market, said Mr. Mahboob, a Pakistani-born US citizen.

Because Singapore has the “natural disadvantage” of not being an Islamic country, the Republic must continually develop its existing financial infrastructure, said Mr. Mahboob, who has helped structure cross-border financial deals in Malaysia, Pakistan and the United States.

Mr. Adiwarman Azwar Karim, an adviser to the Indonesian central bank, will hold a converence on June 20, titled “Islamic Banking in 90 minutes” to discuss Islamic frameworks for Singapore’s banks and professionals.

In August, Youth Entrepreneur Network (YEN) will organize a forum to discuss regulatory frameworks for Islamic banking and other issues.

“Singapore should focus on financial engineering capabilities, by developing high-end structured products such as asset securitizations, real estate investment fund structures and commodity fund,” said Mr. Mahboob.

In Particular, Singapore’s strengths in oil trading and its long-standing affiliation with the Chicago Mercantile Exchange puts the island-state in a very advantageous position to structure oil-related financial products, he said.

“It will be interesting if the Singapore Exchange can link up with the Chicago exchange for oil trading,” He said. Such a link would provide more depth and liquidity to both exchanges, making Singapore more attractive for Islamic funds, he reasoned.

This suggestion comes shortly after the Singapore Exchange’s failed talks with the New York Mercantile Exchange, the world’s largest physical commodity exchange.

Singapore can also benefit greatly by learning from the Islamic banking experiences of Indonesia and Malaysia, said Mr. Adiwarman.

“Singapore has to convince the global market that it can do sharia banking as well as it does conventional banking,” said Mr. Adiwarman, who was involved in structuring the first Ijarah bond in Indonesia for the Matahari shopping mall.

“But first, Singapore needs people like us to fulfill the sharia compliance part. By combining these to forces – infrastructure and skills, Singapore can do much better,” he added.

Singapore needs more Islamic banking expertise


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