Opening Remarks by Mr Ng Nam Sin, Executive Director, Monetary Authority of Singapore at the 4th Asian Takaful Conference, 30 March 2009, Singapore
1 A very good morning to all of you. To our guests from overseas, a very warm welcome to Singapore.
2 I would like to thank the organisers for inviting me to speak at this event. Having spoken at the Inaugural launch of this Conference in 2006, I am pleased that this event is now into its fourth year.
Growth & Potential of Takaful
3 A recent study by Swiss Re indicated that the takaful market has grown strongly in the past few years, with a yearly growth of about 25% between 2004 and 2007, compared to 10% in the conventional market. Moody’s has estimated that total premiums for the takaful industry were in excess of US$2.5 billion in 2007. This is still small compared to the nearly US$4 trillion level of global premiums for conventional insurance, underlining the scope for further expansion of takaful in future. While this can be seen as an opportunity, are there areas that need to be addressed in order for growth to accelerate.
Challenges Confronting the Industry
4 Indeed there are challenges that need to be addressed. I will focus my comments on just two – the challenge of investing the growing pool of takaful funds in a Shariah-compliant manner, especially in the current uncertain financial market; and the lack of regulatory standards for the takaful industry.
5 On the first challenge, takaful funds are largely invested in Shariah-compliant equities, real estate and sukuks. Before the onset of the global financial crisis, there were already insufficient Shariah-compliant assets to meet the investment needs. The situation has worsened with the crisis. The issuance of sukuks has sharply declined in the past year. The crisis has also severely reduced the value of investments by both conventional insurance and takaful companies. These developments underlined the need for takaful operators to monitor more carefully the impact on their operations and manage the underlying risks of their investment activities.
6 On the regulatory front, the recent turmoil in financial markets has underscored the importance for appropriate standards and regulations. The takaful industry has the unique opportunity to address these issues early while it is still in the formative stage. To help address this challenge, the Islamic Financial Services Board (IFSB), the standard setting body for the Islamic financial services industry, has recently issued the first draft standard for the takaful industry for public comments . This is a collaborative effort with the International Association of Insurance Supervisors (IAIS) and many insurance regulators, including the Monetary Authority of Singapore (MAS). MAS is contributing in this area through our Chairmanship of the IFSB Working Group on Solvency Requirements for Takaful Operators.
7 However, industry players too have a vital role to play here. In fact, a window of opportunity will present itself. The IFSB is organising a public hearing session on 5 May 2009 in Singapore, on the eve of the 6th IFSB Summit that the MAS is hosting. The session aims to gather feedback on the draft takaful standard. We encourage industry players in Singapore to actively participate in this dialogue.
Takaful & Islamic Finance in Singapore
8 Singapore hopes to play a major role in facilitating the growth of Islamic financial services. We can contribute in various ways. Firstly, for takaful, we can leverage on Singapore’s position as a leading insurance centre in Asia. A number of Singapore-based reinsurance companies are already providing retakaful services.
9 Second is the area of regulatory and tax frame-work. We have incorporated takaful into our insurance regulatory framework since 1995 when takaful products were first introduced here. This is in line with our approach of regulating Islamic financial services, including takaful, under the same framework as conventional financial services given that prudential issues are common to both. We have also clarified the treatment of various Shariah-compliant financing arrangements which Singapore-based financial institutions can enter into. The latest two structures announced earlier in January this year are the Ijara wa Igtina and the Murabaha Interbank placements.
10 We also worked on levelling the playing field between Islamic and conventional financial services. This ensures that Shariah-compliant products are treated similarly in terms of regulatory or tax applications where the economic substance and risks are similar. These changes create the necessary pre-conditions for growth of Islamic financial services and products in Singapore. In this respect, the MAS has launched our S$ sukuk issuance facility in January 2009. This is to provide Shariah-compliant regulatory assets needed by financial institutions that are carrying out Shariah –compliant activities in Singapore.
11 Thirdly is the area of training and education. In the past year, established training providers such as Chartered Institute of Management Accountants (CIMA) and the Securities and Investment Institute (SII) have brought their Islamic finance courses to Singapore. We welcome more reputable universities and course providers to offer Islamic Finance training in Singapore. This will raise the overall competency of our professionals in this industry.
12 Fourthly, MAS takes an active role in contributing to the formulation of Islamic finance standards and best practices. MAS is a Council member of the IFSB since 2005, with a representative on the IFSB’s Technical Committee which oversees the standard setting work of the body. MAS contributes to the work of the IFSB though our participation in the IFSB Working Groups on Supervisory Review Process, Special Issues in Capital Adequacy, Solvency Requirements for Takaful Operators and the Taskforce on Islamic Money-Markets.
13 The MAS is also collaborating on the international efforts at promoting greater awareness and understanding of the Islamic finance industry. In this respect, the MAS is honoured to host the 6th IFSB Summit in Singapore from 5th – 8th May 2009. The annual Summit brings together central bank governors, regulators, academics and major private sector participants, especially from Asia and the Middle East, to discuss key issues and developments on the regulation and supervision of Islamic financial services. This is the first occasion that the flagship event is being held in East Asia. The theme of this year’s Summit is on the Future of the Islamic Financial services. This event is open to non-IFSB members and we welcome and encourage all industry players to attend and engage with these key players of the Islamic finance world.
14 The near term financial and economic landscape remains an uncertain one. I notice that key topics to be discussed at this conference include corporate governance, regulatory framework and risk management. These are very pertinent issues, given the current environment. The development and growth of Islamic financial services over the past few years has been most impressive. The current financial turmoil should not be allowed to derail its growth. By focussing on key fundamentals, including sound risk management, high prudential & regulatory standards and strong corporate governance, like for other financial sectors, we believe it will be able to ride this crisis and continue on its growth trajectory.
15 On this note, I wish you all a fruitful conference over this next two days, and look forward to seeing you at the IFSB Summit in May. Thank you.