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Saturday, 2 January 2010

Islamic Finance To Play Important Role In 2010

KUALA LUMPUR, Dec 31 (Bernama) -- Islamic finance that has garnered tremendous interest in the face of almost two years of global economic crisis, will have an important role to play come 2010.

As world markets come to grasp with the real strength of Islamic finance to withstand the economic turmoil, Islamic countries especially have already used it to strengthen their economic foundation.

Malaysia, being the frontrunner in Islamic finance with over 20 years experience and has gone through three economic crises, must fully exploit the potential of this industry.

Beefing up Islamic finance with a correct mechanism is the only way to go, analysts say.

Next year could be even tougher and any external developments will not only affect the current economic foundation but Islamic finance as well.

In the sukuk market, for example, trading activities and issuances slowed down in 2009 due to lesser issuance of corporate bonds and Dubai's negative credit news.

Among this year's highlights was the five-year US$1.5 billion Sukuk Al-Ijarah issued by national oil corporation Petroliam Nasional Bhd (Petronas).

It marks a new era of bond and sukuk issuances in the country. It was the single largest US dollar issuance by an Asian entity outside Japan this year and also the largest international US dollar sukuk since the US$1.5 billion Dubai Ports issue in 2007.

Known as the Petronas Emas sukuk, it was part of a bond package that also consisted of a US$3 billion conventional bond.

The Petronas Emas sukuk, together with the RM4 billion Sukuk Al-Musharaka issued by Cagamas MBS earlier this year, are listed on Bursa Malaysia and also on the Labuan International Financial Exchange and the Luxembourg Stock Exchange.

Asian Islamic Investment Management Sdn Bhd chief investment officer Chan Cheh Shin said Malaysia had continuously promoted and solidified its efforts to make the country a prominent sukuk player.

Chan, who oversees RM730 million assets under management, said both the government and private sectors had played their part in the issuance of benchmark-size sukuk bonds.

"Local players can and should build on the government effort in promoting Malaysia's name as the Islamic financial hub. The issuer and originator should step up their efforts on issuing and originating debts in the sukuk form," he told Bernama.

He said that as the economy recovers, companies would be more willing to borrow. Thus, sukuk issuance would increase, he said.

The recent policy to allow non-Islamic banks to participate in Shariah-compliance products was also a welcome step in promoting and retaining foreign interest in the industry, he added.

Whether Malaysia is still a forerunner in the global sukuk market, he said:

"Malaysia is way ahead in infrastructure and has a ready pool of investors for sukuk. Thus, it is a serious contender as a hub in Asia. London may dominate the European space."

In Islamic banking, all eyes will be on the country's new recipients of Islamic banking and family takaful licences.

With the new boys jumping onto the bandwagon, competition for a slice of the industry pie would be much tougher and stronger.

Therefore, it is imperative for the existing Islamic banking and takaful players in the country to enhance their ability and create more innovative products suitable for the public.

Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz recently confirmed that the country had shortlisted two foreign banks to be licensed as mega-Islamic banks with a minimum capital of US$1 billion each.

She said applications for the two mega-Islamic banks were still being processed and an announcement would be made by the end of the first half of 2010.

Currently, Malaysia has 14 wholly-owned foreign banks, both conventional and Islamic, and may give another five banking licenses by 2012.

Islamic banking accounts for 18.8 per cent of Malaysia's total banking assets.

Dr Zeti pointed that the inherent features of Islamic finance were among the factors that contributed to the country's financial stability.

She said Malaysia had continuously been involved in strengthening the Islamic finance architecture to ensure the industry's stability and resilience.

Malaysia is also keen to enhance the international dimension of Islamic finance through linkages not only with international financial centres, but also with those in the emerging countries of the Middle East, Africa, Central Asia and even Latin America.

"It is in the latter areas we believe that economic recovery will be the fastest. Bilateral trade is still important, but we also need strategic alliances and Islamic finance can play an important role in this respect," Zeti said.

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