By Shamim Adam
May 7 (Bloomberg) -- The Monetary Authority of Singapore said it plans to refine its Islamic finance regulations to boost the industry, betting demand will grow as investors seek alternative assets.
There’s still interest in bonds and other products that comply with Muslim Shariah law amid the global financial crisis, the central bank’s Managing Director Heng Swee Keat said in an interview in Singapore yesterday. The city state will maintain its regulation standards as it grows its Islamic finance market, he said.
“Maintaining a very high standard of regulation is a very important part of this whole development effort,” Heng said. “It’s undesirable to pull the shoots to get it to grow faster. It has to be organic.”
Rising oil wealth and government initiatives have turned Islamic banking and insurance into an industry with $1 trillion in assets globally. Singapore, among Asian nations seeking a larger share of Muslim wealth, is giving incentives for Islamic services as it encourages financial institutions to introduce more products that comply with Shariah law.
“We’ll issue a consolidated set of guidelines to clarify the treatment of Islamic financial activities and how our regulatory rules apply,” Heng said. “We want to make sure that the ground is fertile for various forms of activities.”
Central bank officials from the Middle East and Asia are gathering in Singapore this week for the annual Islamic Financial Services Board summit to discuss the direction and development of the industry.
Sukuk Program
Singapore announced a sukuk, or Islamic bond program, in January as it sought a larger pool of international investors. It issued the debt to the Islamic Bank of Asia, and is “evaluating” requests from others for more of the bonds, Heng said yesterday.
Sales of sukuk worldwide plunged in 2008 as tumbling crude oil prices sapped demand from the Middle East, falling to $13.9 billion from a record $31 billion in 2007, according to data compiled by Bloomberg. Sales have reached $3.4 billion so far this year.
About $1.5 billion of sukuk bonds may be issued in Indonesia, Malaysia and Singapore this year, Heng said.
“That’s not a bad development considering the state” of the global economy, Heng said. “It shows a certain fundamental momentum.”
Indonesia’s first international sale of dollar sukuk drew orders for $4.7 billion, seven times the $650 million of securities on offer, the nation’s debt management office Director General Rahmat Waluyanto said April 17.
Islamic REITs
In June 2008, the Singapore monetary authority said it was seeking to develop a market in Islamic real-estate investment trusts to attract funds from the wealthy in Asia and the Middle East. That may be delayed and the central bank has no plans to hurry the development, Heng said.
“It’s not a good time because the global property market has come down significantly,” he said. “It’s really up to the investors and the financial institutions as they assess the demand for this.”
The central bank is also planning to issue more licenses for Shariah-compliant funds, depending on demand for the products, Heng said.
To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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