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COFFIS , 6 February 2012. MAJOR REGIONAL TRENDS IN ISLAMIC FINANCE DEVELOPMENT. Assoc. Prof. Dr. Mohamad Akram Laldin Executive Director of ISRA. Presentation Outline. Introduction Historical Development of Islamic Banking & Finance Some Regional Development The Global Trends

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major regional trends in islamic finance development

COFFIS , 6 February 2012

MAJOR REGIONAL TRENDS IN ISLAMIC FINANCE DEVELOPMENT

Assoc. Prof. Dr. Mohamad Akram Laldin

Executive Director of ISRA

presentation outline
Presentation Outline

Introduction

Historical Development of Islamic Banking & Finance

Some Regional Development

The Global Trends

The Challenges Ahead

Conclusion

introduction
Introduction
  • Islamic Finance is a progressing industry.
  • Viable alternative to conventional finance.
  • Adopted across the globe.
  • Many developments has taken place and Islamic Finance has a lot of potentials.
  • Advantages:
    • Based on the Principle of Shari’ah
    • Variety of contracts and allow dynamism and flexibility in products development and innovations.
    • Promise growth in accordance with stability
raison d etre of islamic finance emergence
Raison d’etre of Islamic Finance emergence
  • Legal concern: “Halal” finance
    • Modern Finance is practicing riba and unlawful contracts
  • Systemic concern: “Islamic” financial system
    • Modern finance is fragile, unjust, exploitative and destructive
  • “New” finance model is needed  Islamic Finance
  • “Islamic” Finance is a financial system/practices based on the goals and principles Shari’ah
islamic financial system
Islamic Financial System

Islamic Financial Services

Islamic Banking

Financing

Deposit & Investment

Equity

Islamic Capital Market

Sukuk

Funds & Unit Trust

Private Equity & Venture capital

REITs

Derivatives (limited)

Takaful

Takaful

Retakaful

historical landmarks in islamic finance development
Historical Landmarks in Islamic Finance Development
  • 1963: Mit Ghamr, Egypt
  • 1969: Pilgrims’ Fund Board (Lembaga Tabung Haji), Malaysia
  • 1970: Oil boom
  • 1975: Islamic Development Bank, Saudi Arabia
  • : Dubai Islamic Bank, UAE
  • 1977: Fatwa issued by the Figh Council of Muslim World League in favour of Islamic insurance (takaful)
  • 1978: Luxembourg Islamic Bank (1st attempt in the West )
  • 1979: Sudanese Islamic Insurance Company is established as the
  • world’s 1st Takaful company by Faisal Islamic Bank of Sudan
  • 1983: Malaysia passes comprehensive legislation on Islamic finance (Islamic Banking Act)
  • 1988: OIC Islamic Fiqh Academy legitimizes Sukuk which paves the way to the development of Islamic debt securities
  • 1990: World 1st sukuk issued in Malaysia (Based on BBA) by Shell MDS worth USD 30 million
  • 1991: AAOIFI , Bahrain
  • 2002: IFSB, Malaysia
  • 2011: International Islamic Liquidity Management (IILM), Malaysia
malaysia as international islamic financial centre
Malaysia as International Islamic Financial Centre

INITIATIVES:

  • Financial Sector Master plan 2001-2010
  • Financial Sector Blueprint 2011-2012
  • Economic Transformation Program (ETP): A Roadmap for Malaysia to 2020
indonesia
Indonesia
  • Regulation:
    • 1992: Act No. 7 of 1992 is enacted to be legal foundations for Islamic banking operations in Indonesia
    • 1993: Act No. 23 of 1999 allowing Bank Indonesia as central bank to also conduct its monetary role in accordance with shari’ah principles.
    •  2008: Act No. 21 of 2008, 1st Islamic banking act
slide13

Unlock the potentials:

    • Late comer: 1st Islamic bank, Bank Muamalat Indonesia, was established in 1992
    • Small market penetration:
      • Population: 237,512,355 (Muslims 85%)
      • Size of Economy (GDP): USD 410.3 billion
      • Islamic Banking assets: USD 3.9 billion
      • Islamic banking shares: 1.99% of total banking shares
    • Grand strategy:
      • 2002: The Blueprint of Islamic Banking Development in Indonesia (10 years planning)
      • 2008: Grand Strategy of Islamic Banking Market Development aiming at becoming a leading Islamic Banking player in ASEAN
singapore
SINGAPORE
  • Regulation
    • June 2006: The Monetary Authority of Singapore (MAS) gave its approval to banks to engage in non-financial activities, such as commodity trading, to facilitate Murabahah transactions for clients’ investments
  • Tax Treatment:
    • In 2005: Singapore waived the imposition of double stamp duties in Islamic transactions involving real estate and accorded the same concessionary tax treatment on income from Islamic bonds that are applicable to conventional bonds.
    • In 2006: Singapore identified Shari’ah compliant products and ensured that they do not suffer more taxes (e.g., income tax and GST/goods and services tax) due to the nature of their structuring.
  • IFSB Membership
    • MAS (The Monetary Authority of Singapore ) joined the IFSB in December 2003 as an observer member and became a full member in April 2005.
cont d
Cont’d…
  • Growth and development of financial product:
    • November 2005: Maybank branch of Singapore introduced Shari’ah-complaint online savings account and Shari’ah-compliant savings and checking account
    • February 2006: OCBC Bank launched the first Shari’ah-compliant term deposit
    • May 2005: HSBC (Singapore) launched Takaful Sinaran Fund and in September 1995 Takaful Global Fund was launched.
    • February 2006: The first Shari’ah-compliant pan-Asian equity index was launched
    • 27 May 2008: The first listing of a Shari’ah-compliant exchange traded fund (ETF).
hongkong
Hongkong
  • Hong Kong has the strengths and capabilities to develop its Islamic finance sector and contribute to the growth of the global Islamic finance market
slide21

Pakistan

Indonesia

Sudan

Global Interest Towards Islamic Finance

  • Germany
  • Saxony-Anhalt state issued government sukuk
  • First Islamic bank to operate in 2010

South Korea

Parliament expected to pass the law related to offering of tax waiver on foreign investors’ interest income from sukuk issued

  • UK
  • Gov’t sets an objective to ‘entrench London as a global gateway for Islamic finance
  • 5 FSA-approved Islamic banks and Takaful operators
  • Plans to issue sovereign sukuk, amend tax law on IF
  • Turkey
  • Announced IFC Istanbul in Sep ’09 with focus includes interest-free financial business

Japan

Law passed allowing banks to do Islamic finance

Iran

Bahrain

Qatar

  • France
  • Passed rules/regulations to support Islamic finance activities
  • In process of licensing Islamic banks
  • Made fiscal & legal adjustment for IF transaction i.e. taxation guidelines on sukuk & murabaha
  • Malta
  • Plans to position as Islamic finance hub for the Mediterranean

Saudi Arabia

UAE

Kuwait

Thailand

  • Hong Kong
  • Aims to become Islamic finance gateway to China
  • Plans to issue sovereign sukuk
  • Hang Seng Islamic China Index Fund in 2007

Malaysia

  • Jordan
  • Plans to tap sukuk market to finance its deficit
  • Singapore
  • Established first Islamic bank
  • Introduced tax neutrality for Islamic finance
  • Aspiring to be centre for Islamic finance
  • Launched Islamic ETF

Brunei

Aim to become Islamic financial services hub for Asia

Muslim-majority countries offering Islamic finance (IF)

Non-muslim countries starting to offer IF

Courtesy of Bank Negara Malaysia

cont d1
Cont’d…

Source: The World Islamic Banking Competitiveness Report 2011-2012

global islamic banking asset
Global Islamic Banking Asset

Global Islamic Banking assets to reach $1.1. trillion in 2012!

Source: The World Islamic Banking Competitiveness Report 2011-2012

global gross takaful contributions us m
Global Gross Takaful Contributions (US$m)

Global gross takaful contributions reached US$ 7 billion in 2009, and continue to boast healthy growth and could

reach US$ 12 billion by 2011

global sukuk issuance
Global Sukuk Issuance
  • 2010: USD 52 Billion ---- 2011: USD 84.4 Billion

ZawyaSukuk Monitor, January 2012

global sukuk issuance 2011
Global Sukuk Issuance 2011
  • Malaysia: 69%
  • GCC: 23%
  • Rest: 8%

ZawyaSukuk Monitor, January 2012

wide ranges issues
Wide ranges issues

Whither Islamic Banking and Finance?

the potentials of islamic finance
The potentials of Islamic Finance

QUESTION:

Can Islamic Finance:

Maintain the growth momentum?

Offer solutions to world financial problem?

Adopted as International Financial System ?

Source: GIFF 2010

conclusion
Conclusion
  • Global interest:
    • Islamic banking and finance impressively gain global acceptance
      • Customers: to meet the financial needs
      • Government: to absorb as tools in monetary policy
    • New players have declared their interest in Islamic finance
    • The future of Islamic banking and finance is very promising
  • Future Direction:
    • Competition is high and requires innovations in products and services to meet the ever-changing customer needs and expectations
    • More initiatives from government or private are needed to set a solid and coherence International Islamic Finance Architecture
    • More global collaboration is needed to develop Islamic finance to be a viable international financial system