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Banking expert says Islamic Finance sector potential is immeasurable

Published: 10/06/2012 08:07:00 AM GMT
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Singapore: The Islamic Finance Industry has immense potential of growth even though there is sluggish development of economy across the globe.

By Farhan Iqbal


Singapore: The Islamic Finance Industry has immense potential of growth even though there is sluggish development of economy across the globe.

These views were expressed by Managing Director at Monetary Authority of Singapore, Ravi Menon, while addressing a two-day event of the “World Islamic Banking Conference: Asia Summit” in the beginning of this week in Singapore which was attended by several banking experts around the world.

He happens to be a top banker in Singapore and believes in that there is a lot of potential in Islamic Finance system but, he said, the sector will achieve this potential only if it can overcome its fragmented state.

He admitted that the last five years have witnessed tremendous resilience by the Islamic finance system and other economic systems, on the other hand, have been wobbling and still trying to be normalized.

The Islamic Finance industry has grown by about 20 percent per annum in this period to reach $1.3 trillion in total assets last year.

However, Menon said, the overall size of Islamic assets is still less than 1 percent of the global financial system.

Consumers have fewer products choices in Islamic finance and there is also a low comprehensive risk management options for Islamic financial institutions.

Menon pointed out that there are constraints in cross-border investment flows due to different interpretations of what is permissible (Halal) or Impermissible (Haram) under Shariah principles.

He observed, “The isolated pools of Islamic liquidity in each market restrict opportunities for more efficient allocation of capital across consumers, industries and jurisdictions.”

He suggested that Islamic financial institutions must strike roots in the major financial centers of the world to resolve this problem.

He stated in his address, “The broad and deep investor pools in international financial centers offer an opportunity to channel non-traditional sources of funds into Islamic finance.”

“In Singapore, for instance, several local and foreign issuers have successfully tapped the capital markets using Islamic instruments,” he added.

He said that investors from Asia and Europe have been demanding increasingly for such products and many of them are simply attracted by the credit quality and yields offered.

He mentioned that there are opportunities for interaction and collaboration with other players in that international financial centre.

Menon stated, “With its strict prohibition on excessive leverage, Islamic finance has been spared the worst of the financial crisis.”

He continued, “Islamic banks are well positioned to reach out to new customers who are in need of financing, as many global institutions pull back on their lending due to the need to repair their balance sheets.”

Islamic finance is also well placed to meet the increased “return-to-basics” investor demand, he said.

“Islamic finance, with its stronger emphasis on transparency, price certainty and risk-sharing, can benefit from this renewed demand for more basic investments, from Muslim and non-Muslim investors alike,” Menon concluded.



Ravi Menon, Managing Director at Monetary Authority of Singapore

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