A lot of things are currently going on with regards to Islamic finance in Southeast Asia, one of the core regions for Shariah banking, although it was so far mostly confined to Muslim Malaysia and, partly, Indonesia.
This is likely to change when Sarawak, the Christian-majority state in Malaysia’s eastern region on the top of Borneo Island, will host this year’s World Islamic Economic Forum (WIEF), the single most influential international conference on the halal economy with a special focus on banking and finance, from November 21 to 23 in the state’s capital Kuching.
According to Sarawak’s Deputy Chief Minister Awang Tengah Ali Hasan, the state will use the forum as a platform to promote Islamic investment opportunities in various industries in the state, including telecommunications, halal tourism, steel, timber and the oil and gas industries. Sarawak, he noted, is currently also undergoing a rural transformation programme and has designated 77,000 hectares of land for the development of a halal hub.
Since Sarawak has an atypical mix of religions in comparison to Peninsular Malaysia – roughly 42% in the state are of Christian faith, 32% Muslim, 14% Buddhists with the rest following folk religions and others –, the WIEF will also focus on strengthening the partnership between Muslim and non-Muslim communities, the deputy minister said. The conference is expected to attract about 2,000 potential participants and representatives of various sectors of the Islamic economy.
In another development, Islamic finance will soon make its foray into Cambodia, which is home to an estimated 300,000 Muslims, or close to 2% of the population, mainly from the Cham ethnic group. According to the WIEF Education Trust, which held a workshop in Phnom Penh last month, two Malaysia-based Islamic financial institutions are expected to open their first branches by the end of the year and in 2018, respectively.
The two, Amanah Ikhtiar Malaysia (AIM) and the Malaysian Islamic Economic Development Foundation (Yapeim), are Islamic microfinance institutions which plan to offer services to Cambodia’s Muslims who would prefer Shariah-compliant lending services over conventional lenders which charge up to the government’s maximum allowed interest rate of 18% a year for loans, let alone over “informal” lending businesses, aka loan sharks.
According to Osman Hassan, president of Cambodian Muslim Development Foundation, the two Islamic microfinance lenders will charge a borrowing service fee of between 1% and 1.3% per month. Borrowers don’t need collateral for the Islamic microfinance loans such as a house or land – which is the case with conventional lenders and bears the risk of loss of property –; instead they are organised by both AIM and Yapeim into five-person groups who guarantee each other’s loans pursuant to the Islamic a profit-and-loss or risk sharing principle, whereby a part of the service charge goes into a “group fund” acting as a backup in case of defaults.
Hassan noted that this system would promote financial inclusion within Cambodian Muslims, many of which are still “unbanked,” as well as serves the purpose of improving rural economic conditions in a country, which still ranks among the poorest in Asia.
Another recent highlight for Islamic finance in Southeast Asia was the Brunei Darussalam Islamic Investment Summit 2017 held on August 2 and 3 in Brunei Darussalam, which heralded the Sultanate’s aspiration to develop its Islamic finance industry and eventually become an Islamic finance hub in the region.
To that end, the country’s central financial regulatory body, Autoriti Monetari Brunei Darussalam (AMBD), has been tasked to develop and introduce a Shariah governance framework for Islamic financial institutions in Brunei, as well as to enhance the Shariah audit framework for Islamic financial products and services to underline the special “purity” of Brunei’s Islamic finance standards. This would be conducive for foreign Islamic investors, Brunei’s Crown Prince Haji Al-Muhtadee Billah said at the event, adding that Brunei’s Islamic finance expertise would not be limited to Shariah-related issues only, but also span other areas such as financial management, auditing, actuarial practices and investment advisory, as well as financial infrastructure, operating platforms and financial technology development, in cooperation with domestic higher education institutions. These efforts should push the current 53% asset share of Islamic finance and takaful in the deeply Islamic nation significantly higher, he noted.
A view of Kuching in Sarawak, Malaysia. Sarawak will host this year’s World Islamic Economic Forum (WIEF) with a special focus on banking and finance, from November 21 to 23 in the state’s capital Kuching.