Singapore takes second shot at growing Islamic finance industry

All constituents are screened against a set of syariah principles, and the index will start with 48 constituents. PHOTO: REUTERS

SINGAPORE - Singapore is taking another shot at the growing global Islamic banking and finance industry, with the launch of a new Shariah-compliant index that will serve as a benchmark for Shariah-compliant funds looking to invest in the city-state.

It could carve a path for more Shariah-compliant products to be created, with the first foray into Islamic financing not having quite taken off years ago.

The FTSE ST Singapore Shariah Index, launched by FTSE Russell, Singapore Press Holdings (SPH), publisher of The Straits Times and The Business Times, and Singapore Exchange (SGX) on Friday to track Shariah-compliant companies listed on the SGX, comes as the global Islamic banking and finance industry swelled to over US$2 trillion in assets as at the end of last year - a development that underscores the need for appropriate asset-management tools such as benchmark equity indexes.

FTSE Russell partners SPH and SGX to manage Singapore's main stock market benchmark. The STI is widely followed by investors as the benchmark for the Singapore market and is used as the basis for a range of financial products including Exchange Traded Funds (ETFs), warrants, futures and other derivatives.

The FTSE ST Singapore Shariah Index will sit within the FTSE ST Index Series. At the Islamic Finance News forum on Friday, SGX's head of research and products Chan Kum Kong outlined the development of Islamic banking here and the opportunities for its growth.

"In Asia, where the Islamic finance industry has grown substantially over the last two decades, the appetite for Shariah-compliant products continues to build. This growth momentum is attributed to Asia's large Muslim population, strong economic and financial fundamentals, a large investor base, as well as strong government support."

He added that over the years, Shariah-compliant products have become more appealing to mainstream investors, who view them as a way to diversify their portfolios. Industry experts on a panel at the forum largely shared the same optimism, saying that Singapore is well placed to capitalise on the growth of Islamic finance.

Mr Sazali Baharom, CIMB's country manager for Singapore, said: "In terms of regulations, Singapore does have the right ingredients in terms of flexibility and clear regulations." Geographically, Singapore has an advantage as it "sits among the most populous Muslim countries on our doorstep".

It is also near China, where the "One Belt, One Road" development holds opportunities for infrastructure financing, said Mr Emmanuel Hadjidakis, principal at Baker & McKenzie Wong & Leow.

However, there have only been 20 sukuk issuances in Singapore over the past 16 years, said the International Islamic Financial Market data.

The experts pointed to a lack of focus on a niche offering and inadequate demand from retail and corporate investors as likely reasons for the failure of Islamic finance to take off.

Citing Malaysia and the UAE, managing director and head of global Islamic banking at FAB Siraj, Shamzani Hussain, said: "Most of the markets where we've seen a fast pace of growth of Islamic finance vis-a-vis conventional finance are mainly driven by policymakers and regulators. They also have a clear framework as to what they want to achieve over a period of time."

Mr Sazali said: "We need to look at other Islamic finance markets to see what's going to be Singapore's role going forward."

Taking a leaf from Malaysia - viewed as one of the leaders in the global Islamic finance market - he also suggested implementing industry incentives to "get the corporates to see the value that Islamic finance can bring in".

"In terms of regulations, Singapore does have the right ingredients in terms of flexibility and clear regulations." he added.

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