In mid-January 2009 the Monetary Authority of Singapore (MAS) launched its first SGD denominated Sukuk (a bond that adheres to the requirements of Shariah law) programme. With this programme the MAS aims to promote Islamic banking and ensure that the city spot continues to dilapidated into a primary Islamic finance hub in Asia. The pole plot in this sector within the station is presently held by Kuala Lumpur.
The issuance of the Sukuk by the MAS is necessary progress in the development of an Islamic banking market in Singapore as it gives Islamic banks access to local currency liquidity, something that is presently absent. It thus allows the banks to provide Shariah compliant, local currency products, and solutions. With the MAS benefiting from the highest credit rating of the Government of Singapore, an well-known element in the Singapore’s Islamic banks arsenal has been met.
The current Sukuk is significant for another reason. It proves that regional governments are beginning to be pro-active in identifying, and accessing, alternative sources of funding. This is undoubtedly the result of very tight credit markets globally, an unwanted side enact of governments globally trying to borrow their device out of the global credit crunch.
What is also great is that Singapore has again trumped Hong Kong in an famous position of finance. Chief Executive Donald Tsang mentioned the contrivance of the Hong Kong government to promote the territory as a potential Islamic finance hub in his Policy Address in 2007. Since then the government has done very minute to set aside this, I am hesitating to employ the word, vision into practice. Checking around town you will rep many a senior banker frustrated in their intent to win Islamic banking off the ground through a lack of serious government initiative.
Having said this, the timing of the Chief Executive’s recent statement was perfect. It was made in a time of rising oil prices, providing the main proponents of Islamic finance in the Arab world with expansive cash to fund modern Islamic banking ventures as well as driving the growth of the Islamic finance industry. At the time, Hong Kong should have made every anxiety to succor from this ideal scenario. It did not.
Although Hong Kong has missed this, albeit very indispensable, opportunity I beget that it is not too behind to state Hong Kong as Asia’s Islamic finance hub. The paralysis of the ragged banking system has opened the door for another bite at the cherry.
Let me define. The basic principle that underlies Islamic finance is that of shared risk. Risk should be shared between the lender and the borrower. Consequently, the lender is expected to buy a greater interest in the success of the enterprise. Muslims absorb that it is unfair, as well as foul, for the lender to be guaranteed the repayment of capital plus interest regardless of the outcome of the venture. This makes for very prudent financial management. As an extension of this, there are an increasing number of commentators who argue that a global financial system subject to Islamic principles would have meant a mighty safer system than the very fragile house of cards we are now subject to.
Adopting this system of finance would however require a necessary leap of faith from several sectors. Although Islamic finance originates in the religious writing of Islam we should regard it as grand more than that. It is a socially responsible blueprint of arranging to meet the financial needs of society which goes design beyond the religious aspects upon which it is based.
As the financial gateway to China, Hong Kong now has the opportunity to lead the second wave in the development of Islamic finance in Asia. In addition to being home to the world’s third largest Muslim community, China is in need of foreign investments and the collected cash rich countries of the Islamic world are increasingly looking for Islamic investment opportunities in the Far East.
To gain this a marriage made in heaven some decisive action is required on the fraction of the powers that be, in addition to the industry having to educate itself on what is fervent in a banking system that is based on the Islamic principles, and how this can be frail beneficially for all parties keen. Some of the larger financial institutions in Hong Kong already have the well-known know-how. However, the industry at vast, including accountants, bankers, and lawyers has a lot of catching up to do.
