ASEAN KEY DESTINATIONS
Islamic finance key to economic diversification
Brunei: FALLING oil prices may have slowed the growth of global Islamic finance, but this sector will remain a key driver of Brunei’s diversification efforts, according to business intelligence firm Oxford Business Group (OBG).
“With many of the world’s top Islamic financial markets centered on countries where hydrocarbons have been a major source of revenue and economic growth, the fall in oil and gas prices in recent years has undoubtly had an impact on the growth of Islamic Finance,” OBG said in its latest publication The Report: Brunei Darussalam 2016, noting that expectations on the growth of the global Islamic financial industry is expected to slow to single digits in the year ahead.
In Brunei, OBG said the sector also faces “a significant slowdown as citizens tighten their belts and government projects and employment suffer cutbacks”.
But OBG said the sector will remain strong in the long run and continue to play an important role in the Bruneian economy.
“The sector is taking a more strategically important position within Brunei Darussalam’s overall economy as the sultanate moves to end dependency on the hydrocarbon sector for economic growth. This has become particularly pressing in recent times as oil and gas prices have tumbled,” said OBG.
OBG said now is the critical time for the Islamic finance sector. It noted the sector’s ability to reposition and take advantage of the growing international, intra-regional and inter-regional links within the industry is key to its development.
“While Brunei may be a small market, it lies next to one of the world’s potentially largest—Indonesia—with many Brunei banking and finance professionals urging that the sector look beyond the sultanate’s frontiers for greater opportunities,” OBG said.
OBG cited Bank Islam Brunei Darussalam (BIBD), the sultanate’s flagship financial institution, which will continue to have a strong position. Quoting the bank’s 2015 financial statement, OBG said the lender’s profits increased to $191 million from the $84 million posted in 2014.
But the bank’s assets declined slightly from $7.27 billion to 7.06 billion. OBG said this may be due to economic slowdown and the implementation of measures to rein in household debt.
OBG said Takaful had taken up a 34.2 per cent share of the insurance market as compared with conventional insurance. This was up from 2011 when Takaful only accounted for a 28 per cent share of the insurance market. In the fourth quarter of 2015, OBG said Takaful had $27 million in recorded gross premiums in the non-life category, compared with $15 million by the conventional industry. “Thus, in non-life (sector), takaful firms had established a major share, particularly in motor insurance, the largest line of business in the sultanate,” said OBG.
“Takaful companies in this line are often able to offer an advantage over conventional competitors in that the mudaraba (profit sharing agreement) model is one in which surpluses in the writing results are shared between the company and the client, provided that there has been no claim or no claim beyond a certain value,” OBG said.
It said the returns provided through no-claim bonuses and dividends made the takaful option more attractive during tougher economic times.
OBG said Autoriti Monetari Brunei Darussalam’s plan to issue long-term Islamic bonds will develop the the sukuk market.
“The issuance of long-term sukuk would be an important part of boosting liquidity and depth, developing the local sukuk market and a yield curve while creating a better benchmark for local corporates to begin issuing more sukuk themselves,” it said.
OBG said long-term sukuk’s ability to raise more capital for government is important, given the financial downturns caused by declining oil and gas prices.
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