Published Date: 04 June 2012

Developing Islamic Hedging and Liquidity Management

Welcome Remarks by Mr Tai Boon Leong
Executive Director, Monetary Authority of Singapore
At IIFM Industry Briefing on Islamic Hedging & Liquidity Management Instruments
Grand Hyatt, Singapore, 4 June 2012

Mr Simon Eedle, Vice Chairman of the International Islamic Financial Market

Ladies and Gentlemen, good morning

I am pleased to be with you this morning at the industry briefing by the International Islamic Financial Market (IIFM).  I would like to extend a warm welcome to the IIFM Board of Directors.  We are honoured that the IIFM has decided to hold their latest Board meeting in Singapore, and at the same time, offered to share their work on developing Islamic hedging and liquidity management instruments.

The Monetary Authority of Singapore (MAS) is happy to support the initiatives conducted by IIFM, a global standard-setting body specifically for the Islamic capital and money market segment of the industry.  I hope that this briefing will generate greater awareness of Islamic financial hedging requirements, its instruments documentation standards, as well as Islamic liquidity management encompassing the use of Sukuk as collateral and inter-bank Wakalah.

I am heartened by the turnout this morning.  Your presence attests to the growing interest in Islamic finance among financial institutions in Singapore.  As you know, Islamic finance has grown to reach US$1.3 trillion in total asset size.  After originating in the Middle East, it has now spread to countries in East Asia, Europe and Africa.  Around us, the industry is vibrant in Malaysia and expanding rapidly in Indonesia and Brunei.  As activity increases in these countries, it is inevitable that there will be greater inter-bank and institutional demand for funding and hedging counterparties.  Hence, Singapore-based financial institutions will have step up their knowledge and understanding of Islamic structures and products in order to satisfy the rising needs of the region.

MAS has undertaken a host of initiatives to create a conducive environment for Islamic financial activities.  Our fundamental approach is to level the playing field between Islamic and conventional finance as many of the same risks can be found in both.  We therefore look through the form of Islamic products and assess the economic substance and risks involved.

Since 2003, we have provided clarifications for an increasing number of Shariah-compliant financing arrangements permitted under our integrated regulatory framework.  We have also worked with the industry and other government agencies to ensure that Islamic financial players and end-users are not disadvantaged in terms of taxation.  In the last five years, the range of financial instruments has expanded beyond Shariah-compliant credit facilities to capital market instruments such as Sukuk and REITs as well as unique and innovative funds under management.

While some of you are already familiar with and are engaged in these activities, others here may still be new and assessing what is suitable for your institution.  Whatever the reasons, we are all here to learn.  Fortunately, we have many eminent and seasoned practitioners among us this morning.  I urge you to raise questions, seek clarification and engage these experts. It is through such industry gatherings when frank exchanges take place that we can move Islamic finance forward.

With this, I wish you a rewarding discussion ahead.   Thank you.