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Sunday, 20 July 2008

Malaysia to Give Islamic Bank, Fund Manager Licenses

June 20 (Bloomberg) -- Malaysia will allow more lenders to set up Islamic bank units and plans to issue licenses for overseas Islamic fund management companies to woo investments as it faces competition from Singapore, Hong Kong and Japan.
The central bank has given licenses to banks such as HSBC Holdings Plc, Oversea-Chinese Banking Corp. and Standard Chartered Plc to set up ``standalone Islamic subsidiaries,'' Mohd Razif Abd Kadir, Malaysia's deputy central bank governor, said in an interview in Kuala Lumpur yesterday.
``More are in the pipeline,'' he said, declining to name the banks. ``Investors' appetite for Islamic papers is huge'' and they are ``unaffected by the subprime issue.''
Malaysia is giving licenses and offering incentives to help cement its role as Asia's Islamic finance hub. The Asian country, which accounted for two-thirds of global Islamic bond sales last year, has also offered tax breaks to stay ahead of the newcomers vying for a piece of the market estimated to expand to $2.8 trillion by 2015.
Japan plans to sell as much as $500 million of Sukuk this year, according to Moody's Investors Service in February. Hong Kong raised its first Islamic fund last year, fetching $45 million by December. Singapore, which started offering investors incentives in the past few years, said May 13 it plans to develop a facility to start a domestic Islamic bond market.
Huge Potential
Malaysia, where 60 percent of the 27 million people is Muslim, also faces competition from other countries where a majority of citizens share the same faith. Indonesia, which has the world's biggest Muslim population, passed its first Islamic banking law this week to allow foreign and domestic investors to buy stakes of Shariah-compliant banks in the country.
``The potential for growth is huge because it's an underserved market,'' said Fiona Leong Wai, an analyst at AmSecurities Sdn. in Kuala Lumpur. ``That's why you see everyone going in, wanting to have a slice of that market.''
It makes sense for the nation to go after more investments in Islamic products because ``Malaysia is ahead of some of the other countries'' in terms of Islamic finance, she said.
The government said yesterday the stock exchange will introduce two new Islamic products in the first quarter of 2009. The first, called Commodity Murabahah, will use palm oil as the underlying asset for Islamic finance and capital market products, and the other will be a Shariah-compliant instrument that allows borrowing and lending of securities, using the Islamic concept of ``waad.''
New Licenses
In January, it also rolled out an 840 million ringgit ($257 million) Shariah-compliant exchange-traded fund, the first of its type in Asia.
Malaysia will issue new licenses for companies planning to set up an Islamic fund management business in Malaysia, said Mohd Razif, who oversees the development of an initiative called the Malaysia International Islamic Financial Centre, aimed at promoting Islamic finance.
The new licenses mean the funds, which will invest in ringgit and non-ringgit denominated assets, will be exempted from paying taxes until 2016, according to the central bank. The funds won't be restricted to investments in Malaysia, though they need to have experts operating in the country to enjoy the benefits, the central bank said.
`Quite Compelling'
Malaysia has five pure Islamic banks in the country, Mohd Razif said, including Kuwait Finance House KSC, the world's second-largest Islamic bank, and Saudi Arabia's Al-Rajhi Bank. There are nine local banks and 14 overseas banks in the country that already offer Islamic financial services, including HSBC, Oversea-Chinese and Standard Chartered, helping to make country a base for Middle Ease investors amid record oil revenue.
``The flow of capital from the Gulf, with the oil boom,'' will need to find a destination, Mohd Razif said. ``In terms of incentives, it's quite compelling for the banks to consider Malaysia as a gateway to this region.''
Islam's Shariah law bans the payment and receipt of interest, and investments in businesses such as gambling. Sales of Sukuks, or Islamic bonds, are expected to increase more than 22 percent a year in Malaysia, Mohd Razif said.

(By Soraya Permatasari and Ranjeetha Pakiam)
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