||Asean Affairs 6 June 2013
Cross-border Islamic Transactions Set to Take Off
Going forward, in the next phase of growth,that we will see greater proliferation of cross border Islamic transactions. This will add a fresh boost to the growth of the global Islamic Finance industry, complementing the domestically driven growth of Islamic finance markets in Asia and the Middle East.
First, both the Middle East and Asia will continue to post robust growth relative to other parts of the world. This gives incentive for economic and financial players to participate more actively in each others’ economies. The GCC economies have held up well despite weak global growth, suffering limited impact from slowdowns elsewhere in the world. IMF estimates that growth in the GCC countries will moderate slightly but remain robust at 4.0% in 2013 and 2014.4 Growth will be largely driven by increased domestic demand, and further spending on infrastructure to address present shortfalls and facilitate economic expansion.
IMF has projected Asia to grow by 5.7% in 2013, and 6.0% the following year, exceeding the outlook for the global economy.5 Growth in Asia over the medium term will be supported by continued urbanisation, favourable demographics and increased intra-Asian trade and investment.
Second, multilateral Islamic finance agencies are making steady headway in addressing issues that contribute to some fragmentation of the Islamic finance industry. Work by the IFSB in setting international standards and best practices for the industry is providing greater uniformity of regulatory environment for Islamic financial players globally. The International Islamic Financial
Markets (IIFM) is collaborating with ISDA and industry players to develop standardisation of Islamic financial products, documentation and related processes that will facilitate cross-border Islamic hedging, risk management and money market activities. Efforts by the Accounting & Auditing Organisation for Islamic Financial Institutions (AAOIFI), Islamic Development Bank and Malaysia’s International Shariah Research Academy (ISRA) in research and fostering dialogue between Shariah Scholars from various jurisdictions are also narrowing the differences in views on Shariah issues in finance. As work on all these fronts progress, this will encourage greater interest internationally to participate in cross border financing and investment activities.
The prospects for cross-border Islamic finance are already very bright. We are beginning to see cross border sukuk issuance within Asia, as well as between Middle East and Asia. As early as 2010, Malaysia’s Khazanah issued a S$1.5b sukuk in Singapore, while Japan-based Nomura issued 2-year $100m sukuk in Malaysia. Last year, taking advantage of favorable currency swap rates, Singapore listed companies Natural Resources and Golden Agri tapped the Malaysian Ringgit (MR) sukuk market. In the last two years, two GCC firms, Abu Dhabi National Energy Company and Kuwait-based Gulf Investment Corp issued MR sukuk in Malaysia. There is considerable scope to issue more such cross-border sukuk, especially to finance the large infrastructure needs in both Middle East and Asia. Already a large proportion of sukuk issued in each region are linked to infrastructure projects.
*SPEECH BY MR LIM HNG KIANG, MINISTER FOR TRADE AND INDUSTRY AND DEPUTY CHAIRMAN OF THE MONETARY AUTHORITY OF SINGAPORE, AT 4TH WORLD ISLAMIC BANKING CONFERENCE: ASIA SUMMIT 2013, 04 JUNE 2013, 9:00 AM AT PAN PACIFIC SINGAPORE