Islamic financial products already play a central role in the local economy, with sharia-compliant banking holding a 40 per cent market share, a total forecast to reach between 55 per cent and 60 per cent in the next five years or so. The performance of the Sultanates Islamic banks compares favourably to its neighbours. The segment, for instance, holds a 20 per cent market share in Malaysia, widely seen as a leader in Islamic finance internationally, and accounts for just two per cent of financial services in Indonesia, where around 90 per cent of the 250 million-strong population is Muslim.
Though popular with both businesses and the public, local and international authorities have pinpointed some key areas for improvement in the local Islamic financial sector, most importantly in the areas of regulation and monitoring. However, 2011 could well be a year of positive change in that regard.
On January 1, the Monetary Authority Brunei Darussalam (AMBD formally opened its doors, having been established on December 31, 2010. The AMBD has taken over the functions of a number of other state agencies but most significantly it has assumed one role that previously did not exist, that of the countrys central bank. As such, it has been tasked with the formulation and implementation of monetary policy, supervision of financial institutions and currency management, tasks that will become increasingly important to the development of Islamic finance.
With a special secretariat for Islamic advisory services, along with a unit for banking and specialised market supervision and another for takaful, insurance and capital market supervision, all part of a wider directorate charged with monitoring and developing regulatory issues in Bruneis financial sector, the AMBD is expected to maintain a watchful eye on the banking and insurance industry, both its Islamic and conventional segments.
With a stronger regulatory body now in place, one of the potential potholes in the Sultanate's road towards becoming an internationally recognised Islamic finance centre has been filled, while steps are being taken to address another that of a shortage of trained industry professionals.
According to Sri Anne Masri, the executive manager of Ethica Consultants, Brunei Darussalam's Islamic finance sector still has much to do before it can challenge traditional regional leaders such as Malaysia and Singapore.
We still have a lot more to go in terms of market capability, human capital development, international Islamic banking, international takaful.
In terms of capital market, we are not yet ready, she told a conference in mid-December 2010.
According to Masri, the biggest hurdle that the Sultanate needs to overcome is the limited pool of human resources. There is still opportunity because the projection of the whole Islamic industry is about $1trillion, said Masri. We could just get a piece of that pie; one per cent of it is good enough for us.
Having bolstered its regulatory framework, Brunei Darussalam is now working to train more staff to work in the sector, with the Universiti Islam Sultan Sharif Ali offering a bachelors degree programme in Islamic finance, and local online educational and consultancy services provider Crescent developing a masters degree in Islamic banking and finance, to complement its existing list of courses dealing with various aspects of sharia-compliant finance. Courtesy of Oxford Business Group
The Brunei Times