SINGAPORE, 17 April 2006 — The Singapore government has embarked on a wide-ranging review of its regulatory and tax environment to ensure a level playing field for Islamic financial products. This is in line with the city-state’s ambitions of becoming the world’s latest Islamic financial services hub, catering especially for value-added Islamic capital markets products.
As a regulator, stresses Hang Swee Keat, managing director of the Monetary Authority of Singapore (MAS), the central bank, “we will continue to facilitate the growth of Islamic finance. The first set of changes has been made. In the 2006 budget announcement in February, the minister for finance has made it clear that the overall tax policy in the treatment of Islamic contracts is to align the tax treatment for Islamic financial products with the treatment of conventional financing contracts that they are economically equivalent to, and has specifically extended tax benefits to Murabaha (cost-plus financing), Mudaraba (trust financing), Ijara Wa Iktina (leasing and lease purchase) and Sukuk (Islamic bonds or certificates). We hope that this will give the industry maximum flexibility for innovation.”
At the recent launch of the FTSE SGX Shariah 100 (Equity) Index, which was developed by the Singapore Exchange; the FTSE International, part of the Financial Times Group in London; and Yasaar Research, a subsidiary of UK-incorporated Yasaar Limited, Heng Swee Keat stressed that “this launch of the FTSE-SGX Asia Shariah 100 Index marks an important innovation in the financial sector in Singapore. The exchange is working on introducing a series of Shariah-compliant indices covering a variety of markets. The index can serve as benchmark for Shariah-compliant funds investing in Asian equities, and pave the way for creation of other index-linked products. I understand that the Singapore Exchange is working to create an exchange traded fund off the index. This would facilitate the growth of Shariah-compliant funds seeking Asian exposures.”
Heng confirms that currently some $2 billion of Shariah-compliant funds are managed out of Singapore. This is still modest compared to other markets in the region such as Kuala Lumpur. In 2005 also the first Murabaha financing facility was offered in Singapore, as well as the establishment of a re-takaful (re-insurance) company to cater to this growing market.
The Singapore authorities believe that the Islamic finance market will continue to grow rapidly over the next few years. “In particular, the strong growth of the economies in the Middle East has generated substantial demand for Shariah-compliant products. Financial institutions, in response, have been creating a wide range of such products. Asia, as one of the fastest growing region in the world, provides significant opportunities for investment. Investors in the Middle East are also showing increasing interest to diversify and to tap the growth opportunities in Asia.