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Wednesday, 2 April 2008

Malaysia's Affin Islamic unveils new financing facility

KUALA LUMPUR, April 1 (Reuters) - Malaysian lender Affin Islamic Bank Bhd launched on Tuesday an Islamic financing strategy to help small firms raise funds and increase the industry's share of domestic banking assets.

Under the new strategy, banks will be partners instead of just lenders in the development of projects such as the construction of homes.

In its pioneer project, Affin Islamic will team up with small Malaysian property firm Mutiara Goodyear Development to develop a 180 million ringgit ($56.30 million) apartment project in northern Penang state.

Under the deal, the two companies will form a special purpose vehicle that will buy land to be used for the development and jointly undertake the project. Profits and losses from the project would be shared equally between the parties.

Mostly Muslim Malaysia is prodding its Islamic lenders to develop products to draw more investors as part of a plan to make the country a global hub for the $300 billion Islamic finance sector.

Record crude oil prices have fuelled a surge of petrodollars into Asia, with cash-rich Gulf investors hungry for investments that comply with the sharia or Islamic law.

Malaysian Islamic assets such as property and bonds are popular with investors who want exposure to Asia's growth story while complying with the sharia, which forbids interest-bearing loans and investments in alcohol and gambling.

Mutiara Goodyear Chief Executive Kee Cheng Teik said Affin Islamic's financial backing would boost investor confidence in the development.

"Purchasers do not only look at the strength of the development and design, they also look at the strength of the financials, that we can carry through all the project, " Kee told reporters.

Affin Islamic is the Islamic banking arm of AffiN Bank, a subsidiary of Malaysia's second-smallest lender Affin Holdings. Islamic banking assets make up over 12 percent of total Malaysian bank assets and the government wants to increase this to 20 percent by 2010.

Malaysia is home to 12 Islamic banks with almost $46 billion in assets and has the largest Islamic bond market. Malaysia, Singapore and Dubai are all vying to become Islamic banking hubs.

Small Malaysian companies often say it is hard to raise funds to expand their businesses. They say banks are sometimes reluctant to lend to small firms while the lack of strong credit ratings make it difficult for them to tap the capital markets. ($1=3.197 Malaysian Ringgit)

(Reporting by Liau Y-Sing; Editing by Tomasz Janowski)

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