MAS urges Islamic banks to embark on trade finance

It’s a model that fits well with Shariah principle, says MAS exec director Tai Boon Leong.

Here’s an excerpt from Mr Mr Tai Boon Leong’s speach at the Islamic Finance News Roadshow Singapore held yesterday 13 March 2012.

Positioning for growth
This is where Singapore can come in. As an international financial centre with more than 700 financial institutions, we intend to, through our participation, bring Islamic finance to a more diverse audience and promote greater acceptance internationally.

I am pleased that, in recent years, the diversity of players offering Islamic financial services in Singapore has increased. Regional banks have contributed significantly to the Islamic finance landscape here, bringing with them years’ of experience and expertise from their home countries. International banks have supported the investments of Singapore players such as AEP Investment Management and Keppel Data Centre Investment Management, who jointly manage the world’s first Shariah-compliant data centre fund. In addition, a growing cluster of Middle Eastern banks operating in Singapore has begun to offer Islamic financial services. Together with the local banks who have been serving the market, such diversity will bring about a more vibrant and competitive industry.

To ensure that Islamic finance competes on an equal footing with the broader financial sector, MAS has worked closely with the industry and various government agencies to remove regulatory and tax impediments. As the industry evolves, MAS will continue to refine our regulations to cater to the needs of the market. Events like today’s Roadshow and the World Islamic Banking Conference Asia Summit in June this year are vital platforms in profiling the industry and for bringing key stakeholders together to discuss the next moves that will carry the industry forward.

Trade finance as a source of growth
We are encouraged by the renewed growth of the industry and continue to be optimistic of its longer-term prospects. The successful completion of several milestone transactions in Singapore demonstrates that with the right offering and pricing, there is good demand for Shariah-compliant products.

Islamic finance players should however explore new growth areas which adhere to Shariah principles. One such possibility is trade finance. Globally, trade finance is facing funding pressures as European banks, who have been traditionally strong in this sector, continue to deleverage and adjust to the requirements of Basel III. Given Islamic finance’s emphasis on supporting tangible, real economic activities, trade finance is a business segment which fits well with Shariah principles and business model. Banks with Islamic operations here are therefore well-placed to take advantage of the sizeable trade flows between Singapore and the Middle East. Last year, bilateral trade flows between Singapore and the GCC grew by over 40% and reached S$62 billion. The GCC is now Singapore’s 6th largest trading partner.