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WITH cross-border Islamic finance set to grow further, Singapore's central bank will continue to strengthen its Islamic finance regime and capabilities, said Jacqueline Loh, deputy managing director of the Monetary Authority of Singapore (MAS).
Speaking at the World Islamic Banking Conference Asia Summit in Singapore on Wednesday, she said this will support opportunities from stronger trade and investment links between Asia and the Middle East, as well as Asia's infrastructure projects.
Infrastructure in South-east Asia will need about US$60 billion a year until 2022, she said, citing a KPMG study.
"The asset-backed nature of Islamic finance makes sukuk ideal for financing infrastructure projects and will complement ongoing work by Singapore to enhance the bankability of infrastructure projects in the region and involve more capital market participants," she said.
The Islamic Development Bank (IDB) is exploring a potential link-up with the planned Asian Infrastructure Investment Bank (AIIB); this could spur the use of sukuk to fund some of Asia's infrastructure needs, and tap a growing pool of Islamic investors across the Middle East and South-east Asia.
The global Islamic finance industry has been growing significantly in the past decade, with total assets last year exceeding US$2 trillion, up from US$700 billion in 2005. Most of that demand stemmed from Asia and the Middle East, and trade and investment flows between the two regions are expected to go up in the coming years, Ms Loh said.
Increasing wealth accumulation in the Middle East will also expand the pool of Islamic funds seeking diversification into foreign investments, and Asia will be a key investment destination for these funds, she added.
Since MAS established its sukuk facility in 2009, there have been eight sukuk issuances totalling S$600 million, with the latest one last November being the largest.
The programme provides Singapore-dollar Islamic regulatory assets for banks undertaking Islamic finance activities here, and encourages corporates to issue sukuk to meet demand from financial institutions and investors.
To facilitate further growth of Islamic finance in Singapore, MAS is working with the industry and other government agencies to provide clarity and certainty in the regulatory and tax treatment for sukuk. Industry players have suggested pre-approved, standardised templates for common sukuk structures that could speed up issuance, for example. Islamic finance activities in Singapore cover Islamic banking, asset management and capital markets.
At the conference, Saeed Abdulla Al Hamiz, assistant governor for banking supervision at the Central Bank of the United Arab Emirates, said that in order for the Islamic financial services industry to progress to the next level, it has to be fully integrated into the global financial system, with its specificities acknowledged.
"Currently, practices in many countries accommodate the industry within the financial architecture of the conventional finance system, with little or no regard to the special features in the products and services offered by the industry."
The gap between the needs of the Islamic finance industry and the financial architecture in place "may have very damaging effects", he said.