The Straits Times spoke to Nominated MP Ismail Hussein on Islamic banking previously. We reproduce below extracts from two articles where he shares his perspective on Islamic banking.
Dispelling myths about syariah-compliant financial products Retail investors will soon get to invest in Singapore’s first syariah-compliant real estate investment trust (Reit). In fact, the Sabana Reit – set to hold about $850 million of Singapore industrial properties – is expected to be the world’s largest certified syariah-compliant Reit when it goes on sale late this year.
That is exciting news, but let’s back up a moment.
Even many savvy investors are hazy when it comes to the apparently mysterious world of Islamic finance. How does a syariah-compliant financial product differ from a conventional one?
To add to the confusion, there are unfamiliar Islamic finance-related terms such as riba, haraam, sukuk and murabahah to contend with. The Sunday Times reports:
Myth: Islamic banking is an outdated banking system which is not suitable for modern society.
This is untrue. According to Mr Ismail, head, Islamic banking at Maybank Singapore, Islamic banking has matured from a niche market into a global financial industry.
“The demand for financial products and services that conform to syariah is increasing as it provides transparency and certainty,” he said.
It was recently reported that the global Islamic finance industry’s assets are in excess of US$1 trillion today.
This may double in the next three to five years.
More businesses are keen to be certified syariah-compliant and it is a commercial decision.
By doing so, they open themselves to a wider investor base that includes Middle Eastern customers with deep pockets and investors keen to uphold syariah principles and ethical investing values. It helps that there are often no significant changes to their operations even after they become syariah-compliant, said Islamic finance experts.
New Islamic financing package from MaybankMaybank Singapore is offering smaller firms an Islamic commercial property loan that comes with one of the longest fixed interest rate terms here.
The product, called Maybank Islamic Term Financing, will provide small- and medium-sized enterprises (SME) with financing for completed commercial and industrial properties, on a mid- to long-term basis.
Maybank said in a statement yesterday that both fixed- and floating-rate packages can be offered in terms of up to 10 years – much longer than the two to three years that are generally offered by lenders here.
It also said SMEs that take up its floating rate packages can enjoy more peace of mind because the floating rate comes with a 5 per cent cap on effective rates per year.
The announcement comes after the success of a similar syariah-compliant commercial property financing product, launched in Malaysia last June.
Maybank Singapore head of Islamic banking Ismail Hussein said the product had contributed significantly to Maybank’s Islamic SME financing portfolio – worth more than RM597 million.
“What was interesting was that in Malaysia, 40 per cent of our Islamic financing base is made up of non-Muslim businesses,” he said.
“Similarly, I think the take-up of Islamic financing will be good here across both Muslim and non-Muslim SMEs because of the certainty and peace of mind it provides, especially given the current uncertain global economic environment.”
Mr Ismail said the product is based on principles of Islamic financing, where rates to be paid by customers are agreed upon upfront.
“Customers get the peace of mind, knowing exactly how much they have to pay for the financing.”
Islamic banking, which adheres to syariah or Islamic law, forbids the payment of interest, speculation or investment in businesses such as gambling and alcohol.
The conservative nature of the system makes Islamic banking a less volatile alternative to conventional banking. For example, the ban on interest earnings and the lack of Islamic structured products shielded the sector from toxic assets like the sub-prime loans that hurt mainstream banks in the recent financial crisis.
A check with SME lenders like Standard Chartered Bank, Citibank and OCBC Bank confirmed that off-the-shelf financing packages with fixed rates that stretch up to 10 years are rare.
While they say loan packages can still be customised with longer fixed terms based on the needs of a customer, such requests were far and few between, especially in a low interest rate environment.
Most businesses saw Maybank’s new product as a positive move to support growth, but some, like Tridan International founder Daniel Yap, prefers having the flexibility to refinance his loans.
“Ten years is really a long time, especially for a commercial property loan. Typically, I would consider refinancing it in about two or three years,” he said.