Financial Insights Asia/Pacific Sees Rapid Rise of Islamic Banking and Finance

Singapore and Hong Kong - 5 July 2007

Malaysia Leads, Asia Follows

Leading independent research and advisory firm Financial Insights, an IDC company, today announces the release of a new report series looking at the development of Islamic banking and finance (IBF) in Asia/Pacific. Islamic banking and finance (IBF) has been growing rapidly over the past few years. Though estimates vary, there is little dispute that annual global growth is consistently in the double digits and that Islamic finance assets under management are currently valued at more than US$400 billion.

As IBF matures, the industry is seeing a shift from Islamic banking products that merely imitate conventional ones – shariah-compliant products – to completely new, shariah-based products. This should help IBF establish its own unique identity, independent of conventional banking and finance. It is also interesting to note that IBF products in general are attracting a large non-muslim client base. For example, several large Malaysian banks that offer IBF products and services have stated that more than 50% of their IBF customers are non-muslims.

The IBF industry has reached a point where, in some product areas, it can provide a credible alternative to traditional banking products. However, the relationship between these two systems is likely to become more complementary than competitive. IBF allows financial institutions to provide much needed capital to the muslim community and does so in a manner that is fair, transparent and respectful of their beliefs. It is a powerful instrument to assist the Islamic world with its development objectives and will help large numbers of individuals get access to the products and services that non-muslims have been enjoying for decades.

Abhishek Kumar, market analyst, Asia/Pacific Banking Advisory Service, notes, ”The future for Islamic banking and finance in Asia looks bright and continued support by government authorities should ensure this future is grounded in strong, sensible regulation. One concern, however, is that IBF growth in recent years has occurred during economic boom times. How the system handles a major financial crisis or recession will be the true test of its sustainability."

Kumar states, “One of the primary reasons Malaysia has taken the lead in IBF is because the country maintains a liberal attitude towards IBF practices but has also established a firm foundation in regulation.”

The country is a pioneer in Islamic finance through its continuous innovations in the field. Other countries such as Indonesia, Pakistan and Thailand are looking to replicate Malaysia’s success by actively promoting Islamic finance. The most recent country to enter the Islamic banking arena is Singapore. The Development Bank of Singapore (DBS) established its IBF subsidiary, the Islamic Bank of Asia, in mid-2007 to focus on wealth management and capital market instruments for corporate and private banking clients in the Middle East and Asia.

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