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ISLAMIC FINANCE IN BRUNEI: Initiatives

Posted by Connie R. Aponte on February 27, 2014 in Finance |

In the last two years, BIBD has taken serious initiatives to introduce equitable Islamic products. Amongst the equity-based products (not asset-based) developed recently are:

• The Musharakah (partnership) to finance SMEs;

• Musharakah Mutanaqisaha: A home-ownership financing in which the bank assumes ownership risks.

In 2013, the Securities Market Order 2013 was issued. This Order is a meaningful step towards promoting Brunei Darussalam as a regional financial center and Islamic finance center. The Order is wide ranging in its relevance and regulates both conventional finance and Islamic investment businesses. Briefly, the Order manages and controls financial services and financial products, including derivatives and other structured financial products, through its ability to regulate two principal areas, namely: (a) ‘regulated activities’; and (c) public offering of securities in Brunei Darussalam. Under these two sub-heads, activities relating to investments businesses and dealings in securities will come within the scope of the Order although there are certain exemptions afforded where the public is not involved.

In addition to that, in a policy move that would change the Islamic finance environment, Minister of Development Yang Berhormat Pehin Orang Kaya Indera Pahlawan Setia Hj Suyoi Hj Osman in his capacity as deputy chairman of the Autoriti Monetari Brunei Darussalam (AMBD) announced that the central bank will be looking to extend the sukuk tenure to have longer maturity dates and to create a secondary market in the near future.The Sultanate has historically been issuing short-term sukuk with a maturity of 91 days.

In addition to legal reform, the sukuk is also developing. Previously, sukuk has not made much headway in the kingdom. The first Sukuk Ijarah was initiated by the Islamic Development Bank of Brunei (now merged into BIBD) and BLNG in 2006. Subsequently a short-term money market Sukuk Ijarah Program was issued by the government of Brunei Darussalam. Neither issuance is traded in the secondary market. The latest, Series 97, was issued on November 14, 2013, and matures on February 13, 2014 at a rental rate of 0.15 percent. According to the AMBD website, the total of these two sukuk issuances amounted to US$200 million.

Although secondary Sukuk market is not very well developed owing to surpluses in the economy, Islamic modes of project financing for oil, refinery and other large scale developmental projects hold great potential. Currently, BIBD managed the landmark Brunei Gas Carriers (BGC) deals worth US$170 million and US$184 million respectively.

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