Development of Islamic Finance

A number of South East Asian nations have promulgated their desire to encourage and nurture the growth of Islamic finance. Singapore has likewise embraced this trend.

In fact, Singapore can be considered to be one of the pioneers of Islamic finance, with the launch of the Mendaki Growth Fund (Amanah Saham Mendaki) in Singapore in May of 1991, as one of the first few Islamic equity funds in the world.

However, in 2005, then Senior Minister Goh Chok Tong and Chairman of the Monetary Authority of Singapore (“MAS”) expressed the government’s desire to help develop the Islamic financial services industry in Singapore. One of the first steps taken by the MAS to aid in the growth of Islamic finance in Singapore was to conduct a preliminary review of Singapore’s regulatory framework in order to decide whether Singapore would need to establish a separate banking regulatory framework for Islamic financial services or, like the United Kingdom, accommodate both Islamic and conventional banking within a common regulatory framework. After consulting with industry practitioners, the MAS decided that there was no need to create a separate Islamic banking regulatory framework. Instead, MAS set about to fine tune the existing framework of banking regulations and focused on leveling the playing field between Islamic and conventional financial services.

This was swiftly followed up with certain tax related regulatory amendments with the same purpose of ensuring a level playing field between certain conventional financial products and their Islamic finance equivalents.

In April of 2005, the MAS joined the globally prominent Islamic Financial Services Board (“IFSB”) as a full member, after having been an observer for a full year. MAS also currently participates in a number of international working groups and task forces focusing on Islamic finance, such as the Islamic Money Market Taskforce, the Supervisory Review Process Working Group and the Special Issues in Capital Adequacy Working Group, signifying the Singapore government’s long term commitment and dedication to the Islamic finance industry.

Singapore benefits from being strategically located at the heart of Asia and has long been considered the gateway to Southeast Asia, home to a substantial Muslim population. Its strength as an international financial centre is often said to be anchored by prudential regulations, consistent regulators and an efficient government, coupled with an excellent business infrastructure, economic freedom and a deep talent pool.

Since 2005, with the conscientious steps taken by the MAS to develop Singapore’s Islamic finance capabilities and infrastructure, Islamic financial activity in Singapore has continued to grow and industry players worldwide have expressed confidence in Singapore having what it takes to develop into a hub for Islamic finance.

Notwithstanding the progress of Islamic finance in Singapore, there is still much more than can be done. In particular, areas such as Islamic fund management and Islamic wealth management remain relatively underdeveloped and must be cultivated in order for Singapore to stand out as the gateway for capital flows and investments between the Gulf and Asia.

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