MALAYSIA
LIBERAL APPROACH BY GLOBAL BOND LEADER
Malaysia has earned praise in the Islamic finance industry for its established regulatory framework and robust Islamic banking system. Central bank data shows Islamic assets make up an impressive 19 per cent of its banking system. The country has a national Sharia council that sets rules for Islamic financial institutions, creating a standardised approach that is lacking in other Islamic markets. Currently Malaysia leads the global market in sukuk [Islamic bond] issuances, accounting for 64 per cent globally in 2012, according to Zawya Sukuk Monitor. That’s due in large part to its supportive central bank, Bank Negara. The country has been at the forefront of innovation in the industry, but its more liberal interpretation of Sharia puts it at odds with conservative Islamic markets such as Saudi Arabia. Malaysia, for instance, allows for tawarruq, in which an asset is sold to a purchaser with deferred payment terms and the purchaser then sells the asset to a third party to get funds. Tawarruq was deemed impermissible by Saudi Arabia’s International Council of Fiqh Academy in 2009, but is still widely used in Malaysia.
TURKEY
POTENTIAL POWERHOUSE TAKES SECULAR STANCE
Turkey, the eighth most populous Muslim nation in the world, long prided itself on its secular stance towards finance and politics. Its four Islamic banks operate under the moniker of participation banks to avoid political sensitivities. But over the past few years, Turkey has made strides in embracing Islamic finance and is seen as a potential powerhouse in the industry. It is a calculated strategy as Turkey aims to strengthen its ties with the oil-rich Middle East and North African markets, while Western economies struggle. Ernst & Young estimates that the Islamic banking sector will triple in ten years reaching $100 billion by 2023. Additional financial instruments, such as sukuk, will add to its appeal. Turkey has already revamped its tax laws to allow for the issuance of certain types of sukuk with double taxation. The country issued its first $1.5-billion sovereign sukuk in September 2012, which held wide appeal among global investors. So far, only one participation bank has tapped the Islamic market, but Turkey expects that the sovereign sukuk will serve as a benchmark for future issuances.
OMAN
NEWCOMER BANKS ON FINANCIAL REFORMS
Oman is a relative newcomer to the Islamic finance industry, but is one that is being watched closely. Until May 2011 the sultanate refused to offer Islamic finance, saying that it preferred a more universal approach to banking. But steady outflows of capital into Islamic banks within neighbouring Gulf countries made Oman rethink its strategy. In January, Oman issued new Islamic banking rules that were decidedly stricter and included provisions which limited Islamic scholars to three-year terms on Sharia boards. Islamic finance has been plagued with criticism that only a handful of scholars sit on a high number of boards for long periods, creating concerns over governance. Market observers see Oman’s rules as a potential template for scholar reform in the industry. To date, Oman has issued licences for two standalone Islamic banks – Bank Al Izz and Nizwa Bank – but conventional banks are already lining up to open Islamic windows. Ernst & Young predicts that Oman will add $6 billion in Islamic assets over the next few years. Total banking assets in 2010 were around $42 billion, Ernst &Young report.
UK
GOVERNMENT BID TO WIN ISLAMIC BUSINESS
Islamic finance within the UK remains a niche industry, but it is one that is increasingly garnering attention. In March, the government launched an Islamic Finance Task Force aimed at strengthening the UK’s stance as an Islamic finance hub in the West, while attracting more inward investment from oil-rich Middle-East countries. The task force, supported by government ministers from a number of Whitehall departments, includes major industry figures to ensure that the UK’s bid is promoted at home and abroad by both the public and private sectors. It is a timely initiative given that the World Islamic Economic Forum, a conference of Islamic financiers, will take place in London this October – the first time this forum has been held in a non-Muslim country. The UK has revamped its legislation to accommodate sukuk issuance, although attempts to launch a sovereign sukuk in 2009 were abandoned in difficult market conditions. Still, London is a significant player in the sukuk market. The London Stock Exchange reports that more than £22.3 billion has been raised there through 49 sukuk issues.
