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ISLAMIC FINANCE IN BRUNEI: Global

Posted by Connie R. Aponte on March 5, 2014 in Finance |

GlobalThe Islamic finance and banking in Brunei is flourishing and the global community is actually keen to tap into the lucrative sector within the key areas of infrastructure development and other areas. For example, the ambassador of the Russian Federation to Brunei, Victor A Seleznev, said that Russia has also started to tap into the Islamic finance and banking sector and added that with Brunei’s experience in the field, both countries could benefit. Previously, the Brunei Deputy Minister of Culture, Youth and Sports, Datin Paduka Hjh Adina Othman, went on an official visit to hold talks with the Vice President of the Republic of Sakha, His Excellency D E Glushko, at the vice president’s office in the city of Yakutsk, Russia (a region rich with oil, gas, coal, timber and all kinds of ores) on July 6.

His Excellency added that there are a lot of possibilities for Bruneian companies to invest in these areas.

In 2013, it was reported that Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking have organized a syndicated loan of $184m for Brunei Gas Carriers (BGC).16 The loan complies with Sharia law, which prohibits the charging of interest. The loan is being paid to a special-purpose company that will buy LNG ships and lease them to BGC. Instead of interest, the Japanese banks will receive charter fees.

To truly benefit from the Islamic finance industry, attempts should also be made to convert Brunei into a regional center for shariah-compliance wealth management as well. This is not too difficult as Brunei itself is already blessed with good cash flow originating from its oil and gas industry.

Brunei has the expertise and regulatory support that will allow it to enter the global Islamic financial market in the asset management sector.To complement existing workforce, credible and established foreign experts can also be recruited on short-term or long-term basis.

Furthermore, Brunei’s agencies such as the Ministry of Finance and its investment agencies have years of experience in this sector, and thus can be used as a leverage. Furthermore, the trends in the market are now heading towards diversifying Islamic assets where he said that asset managers should have the freedom to invest in a wider range of syariah compliant products.

The slow growth of Islamic wealth management sector is a reason for concern. Iqbal Khan, CEO of Fajr Capital (a global Islamic investment firm which owns a minority stake in the government-backed Bank Islami Brunei Darussalam), previously expressed his concern over the growth of the Islamic wealth management sector, saying that its progress is still very much tethered to the current global economic landscape, which unfortunately has not rebounded as hoped:

“Islamic wealth management is firmly rooted in value-producing economies, and does not carry features similar to hedge funds. It is based on the real economy, and there are opportunities in REITs, Waqf and endowment funds However, the elements that caused the credit crisis are still in existence, contributing to the fragile global economy, and a less positive outlook”

The huge global market should be targeted. Moody’s Investors Service believes that the full potential is at least US$5 trillion although currently, it only accounts for around 5 percent of the global financial industry. 18 There is a huge market for Islamic finance. The first being Muslims, which compose about 20 percent of the world population James Hume, executive vice president of the Dubai International Financial Centre, noted:

An increasingly educated populace with growing self-assuredness and awareness of their Islamic roots is becoming alert to the shortcomings of conventional finance and more vocal in demands for alternatives.

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