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Friday, 6 July 2007

Malaysia takes lead in Islamic finance

Malaysia has effectively established itself as the regional, if not global, hub for Islamic finance, which has been seeing consistently double-digit annual growth globally with current asset under management valued at more than US$400 billion (RM1.38 trillion), said Financial Insights, an IDC company. The market analyst for Financial Insights’s Asia/Pacific banking advisory service, Abhishek Kumar, said one of the main reasons Malaysia had taken the lead in Islamic banking and finance (IBF) was because it maintained a liberal attitude towards IBF practices and had also established a firm foundation in regulation. “The country is a pioneer in Islamic finance through its continuous innovations in the field. Other countries such as Indonesia, Pakistan and Thailand are looking to replicate Malaysia’s success by actively promoting Islamic finance,” he said in a statement yesterday. Kumar said the most recent country to enter the Islamic banking arena was Singapore. He said the Development Bank of Singapore (DBS) established its IBF subsidiary, the Islamic Bank of Asia, in mid-2007 to focus on wealth management and capital market instruments for corporate and private banking clients in the Middle East and Asia. Kumar said: ”The future for Islamic banking and finance in Asia looks bright and continued support by government authorities should ensure this future is grounded in strong, sensible regulation.” One concern, however, he said was that IBF growth in recent years had occurred during economic boom times. “How the system handles a major financial crisis or recession will be the true test of its sustainability.” He said as IBF matured, the industry was seeing a shift from Islamic banking products that merely imitated conventional ones — syariah-compliant products — to completely new, syariah-based products. Kumar said this should help IBF establish its own unique identity, independent of conventional banking and finance. Financial Insights said IBF products in general were attracting a large non-Muslim client base. It said for example, several large Malaysian banks that offered IBF products and services had stated that more than 50% of their IBF customers were non-Muslims. It said the IBF industry had reached a point where, in some product areas, it could provide a credible alternative to traditional banking products. It added that the relationship between these two systems was likely to become more complementary than competitive. - (DailyEdge, 6 July 07)

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