Published Date: 21 February 2006

Opening Remarks by Mr Ng Nam Sin, Executive Director, Monetary Authority of Singapore, at the IQPC Islamic Finance Singapore 2006

1   Good morning, ladies and gentlemen. 

2   Let me begin by thanking the organizers for inviting me here today.   Singapore's foray into Islamic finance is relatively new.  I will like therefore to take the opportunity to focus my remarks on how Singapore, a major financial centre in Asia, views the development of Islamic finance, how we are responding to the growing interest and what we are doing to facilitate its development in Singapore.

Growing Demand for Islamic Finance

3   The commonly cited market size of Islamic finance was around US$300bn and growing at about 15% per annum.  I would attribute this rapid growth to the increasing demand for Islamic financial services, and the ability of the financial industry to innovate and create a range of new Shariah compliant products. The Middle East and South East Asia remain sizeable markets.

4   For example, since the issuance of the first global Islamic bond issue in 2002, total sukuk issuance now topped US$40 billion [1] as of end 2005.  In 2006, we have seen large bond issuances such as Dubai Ports Authority and DPI Terminals' issuance of US$3.5 billion and Pakistan Water and Power Development Authority's issuance of US$ 2.1 billion sukuk. There is a healthy pipeline of announced deals as well. Project financing totaled US$8 billion by end 2005 with large corporates, such as Dolphin Energy [2] and Emirates Telecommunications Corporation [3] , tapping Shariah-compliant project financing as a means of diversification in raising funds.

5   For us in Asia, the growing economic linkages between the Middle East and Asia is of great significance.  Our two regions are among the most dynamic in the world today, growing at 5% and 7.5% respectively.  Substantial wealth has been generated in both regions. Just as important, there are also substantial opportunities for investment and financing in both regions. There is a role for Islamic finance in areas such as project financing, trade financing, capital raising, as well as in investments into Shariah-compliant equity stocks and real estate products.

Singapore's Position

6   In essence, we believe that the momentum for Islamic financial services to become an increasingly globally-accepted form of financing will remain. In recognition of this global trend, Singapore, as a financial centre, sees the opportunity to offer Islamic financial services as another capability in its whole suite of financial services.

Review of Regulations

7   MAS conducted a review of our regulatory framework in relations to Islamic banking. Various jurisdictions have taken different approaches; some have a separate Islamic banking regulatory framework that exists in parallel to their conventional framework, while others have regulated both Islamic and conventional banking within a common regulatory framework.  As many of the supervisory processes and prudential measures are common to both conventional and Islamic banking activities, we have opted to accommodate Islamic banking within the existing supervisory framework for banks.  We will not be making any fundamental changes to our supervisory framework, but will refine the rules along the way to facilitate the development of Islamic finance.

8   In September 2005, we fine tuned the regulations to facilitate banks in Singapore to offer financing based on the Murabaha concept.  MAS now exempts  the activity of banks purchasing physical goods and then selling these goods to customers at an agreed mark up price based on the Murabaha concept, from the restrictions on banks conducting non-financial activities. 

9   Since the announcement, several financial institutions have expressed interest to offer products in this space with Standard Chartered Bank being the first to bring a deal to the market, a US$96 million Islamic financing (Murabaha) facility for Baitak Asian Real Estate Fund.  We have also seen the establishment of about S$2 billion Shari'ah-compliant real estate funds managed out of Singapore.  We will continue to monitor the market and tweak the regulations as and when we deemed it necessary.  

Review of Tax Framework

10   We have also looked at the tax treatment in Singapore for Islamic transactions.  Given that the nature and structure of Islamic financial products, they tend to attract more tax than their conventional counterparts. We have therefore sought to level the playing field for Islamic transactions. In line with this policy, the Finance Ministry had announced several changes in last year's 2005 budget and again at this year's budget.

11   In 2005, we waived the imposition of double stamp duties in Islamic transactions involving real estate and accorded the same concessionary tax treatment on income from Islamic bonds that are afforded to conventional bonds.

12   At the recent budget announcement, Income Tax and GST (Goods and Services Tax) applications on some Islamic products are further clarified.  We identified three Shariah-compliant products and ensure that they do not suffer more taxes due to the nature of their structuring.  In addition, to level the tax playing field for sukuk, remission will be granted on stamp duty on immovable property, incurred under a sukuk structure, that is in excess of that chargeable in the case of an equivalent conventional bond issue.

13   The overall policy approach is to align the tax treatment of Islamic contracts with the treatment of conventional financing contracts they are economically equivalent to. We have, thus far, worked through these products and will review tax treatments on other products as industry develops further.

Membership at IFSB

14   Last but not least, MAS is committed to deepen our knowledge and familiarity with Islamic financial services. We joined the Islamic Financial Services Board (IFSB) back in December 2003 as an observer member and have since stepped up our involvement to that of a full member in 2005.  We hope to support and contribute to the global development of Islamic finance by participating actively in standard setting work of IFSB.  Cooperation amongst international regulatory bodies is critical to foster the growth and development of Islamic finance.  


15   In conclusion, let me state that we believe Islamic finance is a development that will see further growth globally. Singapore intends to play a value added role in this development.  As an international financial centre, we are well placed to contribute by leveraging on the expertise and talent base in conventional products such as in wealth management, capital markets and insurance. Singapore's open markets, efficient infrastructure, and transparent regulations will remain attractive to both conventional and Islamic financial services players.

16   On this note, let me thank the organizers of Islamic Finance Singapore 2006 for inviting the MAS to share our thoughts and we look forward to the continued feedback and support of the industry.

17   I wish you all a fruitful time at this conference.  Thank you!


1 Source: IOSCO Report in 2003 and Islamic Finance Information Services.
2 Dolphin Energy Ltd, based in United Arab Emirates, raised US$1 billion Istisna/Ijara financing in 2006. (Source: Islamic Finance Information Services.)
3 Emirates Telecommunications Corporation, based in United Arab Emirates, raised US$2.1 billion Share Murabaha transaction in 2005. (Source: Islamic Finance Information Services.)