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Tuesday, 4 September 2007

Incentives to spur Islamic banking growth in Malaysia

PETALING JAYA: Islamic banks should be given more attractive tax breaks and further incentives to help them develop into global players in line with the government's vision of making Malaysia a global Islamic banking hub, According to industry players, most are already aware of the need to look beyond the domestic market and invest in human capital, among others, to compete in the international arena. Affin Islamic Bank Bhd chief executive officer Kamarul Ariffin Mohd Jamil said Islamic banks currently were too domestic-focused. “In the Malaysian context, Islamic banking assets make up just 11% of the entire banking system assets. Thus, it is difficult for Islamic banks to make an impact globally. “Whilst there are opportunities in other markets, Islamic banks in Malaysia are too domestic-focused,” he said. Due to their size, local Islamic banks lacked regional networking and distribution, he added. For Malaysia to be a hub, these banks must have the ability to distribute products and services internationally, especially in wealth management and Islamic capital market, he said. A spokesman for a local Islamic bank said size did matter for Islamic banks in their quest to go global. “The government should provide incentives to encourage local Islamic banks to grow and venture abroad as this is one of the ways they can compete globally,” the spokesman said. Kamarul cited the example of Singapore's DBS group that had, together with a group of Middle Eastern investors, established the Islamic Bank of Asia earlier this year with an initial capitalisation of US$500mil. The new entity was larger than many of the existing Islamic banks in Malaysia and would have the advantage of leveraging on DBS’ wide regional presence, he said. According to Kamarul, there is also a dearth of resources in Islamic finance. “We lack human expertise to produce new innovative syariah-compliant products. “This issue is compounded by the fact that some Islamic banks regard research and development as 'expenses' and are hence reluctant to invest in this area,” he noted. CIMB Islamic Bank executive director and CEO Badlisyah Abdul Ghani said the government should extend tax benefits offered to Malaysian Islamic bankers returning from overseas to Malaysian Islamic bankers committed to working in Malaysia. Without this, the industry would lose a lot of its talented and experienced Islamic bankers to overseas financial centres, he said. Hong Leong Islamic Bank managing director Khalid Mahmood Bhaimia said there was talent shortage currently in the industry and more scholarships or financial incentives should be given to those keen on studying Islamic banking and finance. “Apart from the lack of general public awareness and understanding of Islamic financial products, Islamic financial institutions also need to be able to better understand the market and exercise innovation in product development instead of merely doing a 'cut and paste' of products introduced in other markets,” Khalid said. Badlisyah said the government should also encourage intermediaries as well as corporates to undertake more Islamic syndicated facilities. This could be in the form of stamp duty exemption to corporate and tax-exempt revenue for banks operating their syndication team in Malaysia, he added. RHB Islamic Bank CEO Jamelah Jamaluddin, on the other hand, said while Islamic banking allowed players to do musyarakah and provided them the flexibility of going into operating lease with partners, current tax laws were not in their favour as expenses incurred on the operating lease could not be offset against total bank income. She hoped the current cap imposed on expenses from operating lease be waived, hence allowing Islamic banks to “expense fully”.
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