Addressing challenges to become Islamic Finance Hub


THE Islamic Financial sector in Brunei has reached new heights as it starts to pick up momentum to develop Brunei as an Islamic Finance hub.

Although Brunei is still a long way from being compared to other developed Islamic Financial sectors in other countries, the challenges that are obstructing the development of its industry has been addressed this year, and it is evident that the industry is moving forward.

One of the highlights of the year includes the recent meeting between the Ministry of Finance (MoF) and the South East Asian Central Bank (Seacen) Islamic Research and Training Institute of the Islamic Development Bank, where in November, had a five-day workshop on building a sustainable Islamic banking system via liquidity management.

Hj Mohd Roselan Hj Mohd Daud, Permanent Secretary of the Ministry of Finance, highlighted the timeliness and urgency in which the issue of sustainability of the Islamic banking system needs to be addressed. He also linked the strength of the Islamic financial system to its survival through the recent global economic crisis, which he observed as being brought on by a liquidity crisis on an individual bank level as well as on a systematic basis.

"The rapid growth of the Islamic banking sector globally has seen total Islamic banking assets rise more than 28 per cent to US$822 billion from 2008 to 2009 alone, he said, adding however that 'complacency' should be avoided as there is still a long way to go," he said.

Two of the biggest challenges that was reported in 2010, was the need to develop human resources for the development of the Islamic finance sector in Brunei, and the need to come up with more products to suit the market.

In the area of human resource development, both the academe and the private sector have recognised this as one of the hurdles that rapidly needs to be overcome. Universiti Islam Sultan Sharif Ali (Unissa), earlier this year, held an International Conference on Islamic Finance, where experts collectively agreed that "human resource development is a key factor in helping boost Brunei's Islamic finance sector".

"Unissa offers a Bachelor Degree programme on Islamic Finance, to introduce Islamic finance to the workforce, and Brunei can also bring in people from all over the world, because now we are staying in a global environment and not just a small village, so we can exchange goods and services as well as knowledge," said Dr Mohamed Sharif Bashir, the dean of the Faculty of Business and Management Sciences from Unissa.

One of the recommendations from the keynote speaker, Dr Abdul Ghafar Ismail, a professor of Banking, Financial Economics at University Kebangsaan Malaysia (UKM), is to have institutions set up in Brunei offering programmes on specific jobs in Islamic finance comprising legal experts, risk managers and so on.

"If you want to improve your products or services, you need experts in Islamic finance, and from there you need to know how to translate your products into a legal document, so there needs to be a legal expert. You also need an expert in risk management, because contracts involve risks. So we need bankers who can deal with these issues from the products or the services that differ from conventional ones," he said.

Technology also plays a great part in developing the expertise that is needed to help with churning out more industry experts in Brunei. Recently, at the end of November, the Authority for Info-communications Technology Industry of Brunei Darussalam (Aiti) granted $151,600 to Crescent Sdn Bhd, an iCentre incubatee for its 'Premier Global End-to-End Online Programme for Masters of Islamic Banking and Finance', which would allow the end-user to sit in a Master of Islamic Banking and Finance (MIBF) programme online.

With backing from iCentre, Hjh Salma Hj Abdul Latif's Crescent Sdn Bhd is girding to help fill the global gap of experts by offering to the masses the first online Master's Degree Course on Islamic Banking and Finance.

The programme which is scheduled to go 'live' next year, consists of 10 modules, written by well-known practitioners and academicians. Modules include Syariah Law of Contracts in Banking and Finance, Islamic Economics and Islamic Risk Investment, among others.

"In other countries we are seeing that the growth of the Islamic Banking and Finance sector has taken a greater stride in developing the talent for the sector. Singapore started much later than Brunei and look at where they are today," she said.

She added however that the need to push developing human resources and development and the need to develop more products for the Islamic Finance sector go hand-in-hand and that the overall need to develop these two segments run in a vicious "catch-22" cycle.

"On the one hand, our market is a small market and so the basic products are all that is needed, because we don't have the market to be able to support more sophisticated products. At the same time, if we do not have the human resources or experts in our market, we are unable to come up with new products as well," she said.

Hjh Salma added that the government would need to step in and initiate the development of talent in not just the Islamic Finance sector but also the conventional banking sector, to achieve Brunei's vision of becoming an Islamic Finance hub.

"The education would not only be for people who are interested in getting into the sector, but it would also be for the public, because once the public is aware of what other Islamic products are out there, then a demand would be created," she said.

Hjh Salma said, she has noticed that there are products in the market right now that are taken from the conventional banking sector and moulded to be syariah compliant.

"Can you imagine if we are able to create new Islamic Finance products? We would not only attract the local market, but regionally and globally people would start to take Brunei as a serious player because we can come up with good products," she said.

In the long-term, Hjh Salma believes that this could boost the local economy.

"You don't need to be a big player to get into the market, you just need to be a smart player," Hjh Salma said, giving the example that Singapore is attracting investments from around the globe due to their products, and that the country is not depending on just the local market to grow.

While sukuk remains one of Brunei's most successful Islamic Finance product, experts are saying that there is still a need for more variety in order to further develop the sector.

At the end of 2009, the Bank Islam Brunei Darussalam (BIBD) launched its Musyarakah Corporate Financing which will make available capital needed by companies that have contracts with the government and Brunei Shell Petroleum (BSP) Berhad.

The MoF, earlier in November, announced the successful pricing of its 51st and 52nd issuance of short-term Sukuk Al-Ijarah securities totalling $73 million.

In a statement, the MoF said the issuance consisted of "$25 million for Series 51 and $48 million for Series 52".

It stated that Series 51 carries a maturity of 91 days with a rental rate of 0.28 per cent, which began on September 2, 2010, and will mature on December 2, 2010.

"Series 52 also has a maturity of 91 days, which began on September 30, 2010 and will mature on December 30, 2010, with a rental rate of 0.28 per cent," stated the press release.

According to the MoF, since April 6, 2006, the Brunei government has so far issued over $2.5 billion worth of short-term Sukuk Al-Ijarah securities.

The Brunei Times
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