Since its introduction in Malaysia in 1963, the Islamic financial system has witnessed tremendous growth in terms of demand, acceptance and development. Given the encouraging good growth in Islamic banking activities among banks in Malaysia, StarBiz talked to some major players to get an insight into the latest developments in their Islamic banking operations and their strategies.
STANDARD Chartered Bank Malaysia Bhd (StanChart), apart from enhancing its Islamic banking products in the local market, is also looking at offering its expertise and products to other Muslim countries to meet the rising demand and potential for such products.
Chief executive officer Shayne Nelson said the current size of the global Islamic financial market was estimated at between US$200bil and US$225bil a year and it was growing at a rate of 15% per annum – a strong indication of the potential of such a market.
“We believe there is room for countries to develop their own Islamic banking capabilities. Labuan has been actively working with Bahrain to develop the international Islamic financial market in the country. This is to create an international secondary market for Islamic financial instruments. Brunei, on the other hand, is more focused on developing itself into an offshore centre for high net worth Muslim individuals.
“While most countries in the region are at least preparing for Islamic banking in view of the potential of the market, the critical success factor for Islamic banking in any country in StanChart's opinion is the acceptance of Islamic banking locally,'' he said during an interview with StarBiz.
Besides remaining committed to growing its Islamic banking expertise in Malaysia, StanChart would continue to extend its Islamic banking products range and expertise to other Muslim countries where the bank currently operated, he said.
The move, Nelson said, was a natural process for the bank as it operated in nearly 80% of the Muslim world. Nelson said the bank would continue to provide product development expertise across the group's network of banks globally.
According to him, StanChart has a range of Islamic products within its consumer banking division and over the last few years, it has expanded into corporate financing as well.
He said that in the last 10 years, StanChart had worked towards building alliances with Islamic product and service providers like Takaful Nasional to offer the best solutions to meet growing customers' needs in line with the country's aspiration to become a regional Islamic financial services hub.
The bank has also provided Islamic financial services in private debt securities to local corporations. Among companies which had benefited from these Islamic structured facilities were Ranhill Bhd, Hong Leong Industries Bhd and Expressway Linkaran Tengah Sdn Bhd, he noted.
Nelson said part of the bank's strategy to stay ahead of competition and garner a larger slice of the Islamic market was to respond effectively to customers' needs and to continue to invest in building products that would value-add and meet their requirements.
On the challenges facing the Islamic banking industry, he said: “The challenge is to formulate a framework that not only takes into account the unique characteristics peculiar to Islamic banking business, but that does not put Islamic financial products at a comparative disadvantage and affect their competitiveness and growth potential in the overall financial system.”
Asked on the development of Islamic banking in Malaysia, Nelson said steps taken by the relevant authorities locally had been comprehensive and focused unlike other countries where the efforts had been sporadic.
The country's central bank, he continued, had also taken proactive lead in setting vital standards and governance that reinforced the efforts to achieve stability and soundness within the Islamic financial system in Malaysia.
With the inclusion of Islamic banking in the country's 10-year Financial Sector Masterplan (2000-2010), StanChart is confident that Malaysia will achieve its target of Islamic banking representing 20% of banking assets, loans and deposits by 2010.
Islamic unit trust business currently is the largest contributor to the bank's Islamic banking business. StanChart is the third largest institutional unit trust agent (third party distributor) in Malaysia with assets under management worth RM93mil as at December 2003.
The bank's latest property financing package based on the Islamic principle of al bai'bithaman ajil or deferred payment is the JustHome-i. The product is the first Islamic financial tool in Malaysia to offer double rebate mechanism covering early redemption and ceiling profit rate.
The bank was also recently awarded the Most Promising New Product for Islamic Retail Banking Award 2004 by London-based Islamic Finance Weekly.
The award was accorded to the bank's investment services.
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