Speeches
Opening Remarks by Mr Ng Nam Sin, Executive Director, Monetary Authority of Singapore at the Asian Conference on Takaful (Insurance) 2006
Introduction
1 Good morning, ladies and gentlemen.
2 Allow me to express my thanks to the organisers for inviting me to its first Asian Conference on Takaful. Takaful is a product that has been offered in Singapore for many years now. HSBC and NTUC Income were two of the pioneers in introducing Takaful product as early as 1995.
3 With the recent growth in Islamic finance internationally, we will likely see further developments in the Takaful industry. This 2-day conference is therefore a timely one to create a better awareness and understanding of Takaful products.
4 I would like to take the opportunity this morning, to share with you how we view the development of Islamic finance and Singapore's role in facilitating its growth.
Development of Islamic finance
5 Global asset size for Islamic finance is estimated at between US$200 and US$400 billion, and growing at 15% per annum. In the capital markets, the global issuance of sukuk or Islamic bonds, has grown five fold over the past 3 years. A total volume of at least US$10 billion is expected to be issued this year. What is noteworthy here is that sukuk issuers are not confined to Islamic institutions - the German state of Saxony Anhalt and the World Bank both have had successful sukuk issuances.
6 Given the strong growth of Islamic wealth and capital, many new Islamic financial institutions are being set up. Major foreign international banks too have within the last 2-3 years, set up dedicated Islamic units to capitalize on this new business opportunity.
Islamic Trends in Finance and Capital Markets
7 The Middle East and Asia are two of the most dynamic regions in the world today, growing at 5% and 7.5% respectively. Trade and investments are set to grow. This represents opportunities for Islamic financial services. Indeed, we have started to see a number of financial institutions based in Singapore offering Islamic trade financing facilities.
8 In addition, Asia is estimated to need over US$1 trillion of infrastructure financing in the coming years, to build power plants, gas pipelines, toll roads, airports and telecommunications systems. The potential for matching the pools of investment funds and economic opportunities between the Middle East and Asia is tremendous.
9 In the funds industry, the estimated size of global Islamic funds under management is about US$300bn [1] in 2005. The availability of Islamic equity indexes such as Dow Jones Islamic Market Index and the recent launch of the FTSE-SGX Asia Shariah 100 Index have seen an increase in Islamic equity funds benchmarked against these indices. In Singapore alone, the fund managers here have moved fast on the opportunity. We have seen three Islamic property funds [2] set up, with over US$1.35 billion earmarked for investment in Asian real estates.
Opportunities for the Takaful Industry
10 The Takaful industry is presently a small but growing one, riding on the growth of Islamic financial services globally. Latest estimates as of 2003 place total direct Takaful premiums at approximately US$1.7bn. About half are written on non-life policies. The main market source stems from Middle Eastern countries, which provide about 60% of the global Takaful business, followed by Malaysia with 27% and Asia Pacific which contributes 9% [3].
Singapore
11 So how does Singapore expect to play a role in Islamic finance? We have begun to look seriously at building our capabilities to offer Islamic finance as part of Singapore's offerings as an international financial centre. With our small domestic market, the larger opportunity for Singapore is to leverage off on the existing infrastructure and critical mass of activities and expertise, to offer wholesale market activities, such as wealth management, capital markets and retakaful activities. Financial institutions here are already offering Islamic financial products and services in Singapore.
12 For example, HSBC Insurance (Singapore) has seen assets under management grown over the past years. NTUC Income, the largest motor insurer in Singapore, recently announced that it is looking at introducing motor insurance policies that comply with Islamic law.
13 There is strong potential for Singapore to play a greater role in the development of Retakaful that will further complement Singapore as a reinsurance hub. There are already a few major players in Singapore who are writing mainly offshore life reinsurance business. We are also seeing greater interest from Middle Eastern Takaful operators to use Singapore as a base to tap the regional Takaful market.
Regulatory regime for Islamic Finance
14 For Islamic banking, MAS has just conducted a review of our regulatory framework for banking. Different regulatory approaches have been adopted by different jurisdictions. For example, 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, MAS has opted to accommodate Islamic banking within the existing supervisory framework for banks.
15 A well-developed and responsive regulatory and supervisory framework underpins Singapore's insurance industry. We will be using the same approach for Takaful and Retakaful insurance companies. We will not be making any fundamental changes to our supervisory framework, but will fine-tune the rules along the way to facilitate its developments.
Islamic Financial Services Board (IFSB) Participation
16 To show our commitment to deepen our knowledge and familiarity on Islamic finance, MAS is now more involved in the standard setting work of the Islamic Financial Services Board (IFSB). We are currently part of two IFSB Working Groups on Supervisory Review Process and the IFSB Islamic Money Market Taskforce.
Conclusion
17 Singapore's open markets, efficient infrastructure, and transparent regulations will remain attractive to both conventional and Islamic financial services players. In Singapore, we are also seeing a growing number of ancillary service providers such as specialized lawyers, beefing up their Islamic finance expertise here.
18 With the projected growth of Islamic finance and for it to become an integral component of the international financial system, collaborative efforts amongst various market participants are needed. Singapore hopes to play a value-added role in this exciting development. Conferences such as this can only be beneficial.
19 On this note, I wish you all a fruitful time at this conference. Thank you.
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1 Source: "Tapping Middle-Eastern Funds", The Edge Singapore, July 11, 2005