Jul 15 2008 Trond Vagen in Hong Kong
Malaysia's markets regulator yesterday said that it has approved the set-up of three Islamic fund management operations by leading financial institutions, thereby strengthening Malaysia's role as Asia's largest Islamic finance hub. The Securities Commission said that it had approved applications to set up Islamic fund managers from Kuwait Finance House, DBS Asset Management and CIMB-Principal Islamic Asset Management. The establishment of the three was in line with aims set out in the country's 2008 budget to strengthen Malaysia's position as an international Islamic finance centre, the commission said.
"We are pleased with the interest shown by international players to participate in Malaysia's capital market," said Dato' Zarinah Anwar, chairman of the commission. "This reflects the global recognition of Malaysia's position as a centre of Islamic finance and enhances Malaysia's opportunity to be a leading Islamic fund and wealth management hub."
In granting the approval, the commission said that it had considered the scope of operations to be established, the companies' fund management experience, brand value, expertise and geographical presence, as well as compliance and risk management capabilities. "The approval of these three companies will play a catalytic role in the internationalisation of our Islamic capital market," Anwar added.
Deborah Ho, chief executive of DBS Asset Management, said the new entity would structure and distribute Islamic asset management products across Asia. "We're pleased to have obtained the go-ahead from the Securities Commission to set up this dedicated Islamic fund management company, and are awaiting the necessary regulatory approvals from the Monetary Authority of Singapore," she added.
Growing market
Until recently, there were only limited and domestic markets for Islamic financial products — which are subject to investment restrictions under Islamic Sharia'h law. With the sharply rising price of oil, however, the massive growth of capital in the Gulf region has spurred a surge in demand for Sharia'h-compliant investment products across the globe. Investors in the Middle East increasingly want exposure to foreign economies without having to resort to investing in conventional banking products.
Malaysia has been actively courting the Islamic market for more than two decades, having established its first Islamic bank in 1983. It has more than $62bn in Islamic assets under management, which makes it by far the biggest Islamic finance hub in Asia. This is the result of a policy that the Malaysian government set at the time, which has actively introduced regulations that are aimed at nurturing the growth of Islamic finance in the country.
In a recent research report, credit ratings agency Moody's Investors Service highlighted the growing importance of Islamic finance worldwide, noting that neighbouring financial centres that are eager to get in on the action are putting Malaysia's efforts under threat.
"The growing acceptance of Islamic banking even among non-Muslims, combined with announcements from Singapore, Tokyo and Hong Kong that they are to increase their participation in Islamic finance, have underlined the industry's potential," said Christine Kuo, a Moody's analyst and author of the report.
Eager to get in on the action — the Islamic finance sector is expected to be worth $2trn in 2010 and grow by 20 per cent annually — the countries have sought out niches that would make them attractive to Islamic investors. Singapore has been longer in the game than its main rival, Hong Kong, which only earlier this year announced that it would attempt to establish itself as an Islamic finance hub. Singapore has come further in adapting local legislation to Islamic finance — e.g., on specific issues such as stamp duty relief and by offering Singapore dollar-denominated sukuks — for what it lacks in concrete regulatory attraction, however, Hong Kong instead touts itself as a gateway for Islamic investment in mainland China.
