COUNTRY FEATURE

SINGAPORE

Will Singapore embrace Islamic finance to

compete with the rest?
The Republic of Singapore, also known as the Lion City, is the world’s most expensive city with a Swiss version
of a wealth management hub and diverse cultural and religious groups including Muslims. While the practice of
Islamic rituals is per the Administration of Muslim Law Act (AMLA), commercial transactions are guided by, inter
alia, Monetary Authority of Singapore (MAS) guidelines on Islamic banking and the directives of independent
Shariah boards. Although the Republic promotes Islamic finance, its growth has not been newsworthy in 2017.
FAZRIHAN DURIAT provides possible root causes and solutions. Eventually, a proactive symbiotic relationship
between industry players and regulators will pave the way for a feasible blueprint for Singapore to compete with
Malaysia and the GCC.

Fazrihan Duriat is a Table 1: Main Islamic finance players in Singapore

banker and an honorary
advisor for Financial
Shariah Advisory &
Consultancy (FSAC), an
independent firm affiliated to
PERGAS. He is a PRMIA Exam
Certification Subcommittee member
and is from EUCLID University’s
Islamic finance faculty. He can be
contacted at fazrihan@euclid.int.
Both Islamic and conventional banking
businesses in Singapore operate based
on a single regulatory framework, hence
a bank carrying out Islamic banking
activities will comply with the same
set of rules and regulations as any
other banks in Singapore (such as the
Banking Act, Banking Regulations and
notices and directives).
The growth of Islamic finance has been
gradual without any significant deals
in 2017. Many players in Singapore are
working hard to ensure that Islamic
finance continue to make an impact.
While some players may rely on their
head office as the ‘lender of last resort’,
others will work with the domestic
entities through mutual understanding.
For example, it is possible for a bank
to have a working relationship with a
local business federation that will help
to promote Islamic financings among its
SME members. Other players may rely
on its extensive network branches and
strong telemarketing strategies to reach
out to potential customers. The main
Islamic finance players in Singapore are
as shown in Table 1.
Possible root causes for slow
uncertain growth
The following are the possible root
causes for the slow uncertain growth of
Islamic finance in Singapore:
Statutory bodies Companies
• Islamic Religious Council of Singapore • Sabana REIT
(MUIS) • Atlantic Navigation Holdings
• Warees Investments • Swiber Holdings
• MAS Sukuk • EthisCrowd
• HTHT Advisory Services
Associations/organizations/bodies • Financial Alliance
• PIH & Co (formerly known as PERGAS • Ideal Ratings
Investment Holdings) – Financial Shariah • ST&T International
Advisory & Consultancy (FSAC) • Syariah Consultancy
• Muslim Financial Planning Association • Barakah Capital Planners
• Muslim Law Practice Committee • Kapital Boost
• Association of Muslim Lawyers
• SMU Islamic Business & Finance Society Prominent law firms (these law firms have
lawyers either with a basic background in
• NUS Muslim society
• Shariah Law Forum Organizing Committee Shariah law or they have handled Shariah
matters before)
• Abdul Rahman Law Corporation
Financial institutions, fund managers, • Jailani Shariff & Co
consultancies • Allen & Gledhill
• DBS (Islamic operations) • Mallal & Namazie
• Maybank • Arfat Selvam Alliance
• CIMB • Norton Rose
• OCBC • Azmi & Associates
• RHB • RHTLaw Taylor Wessing
• National Bank of Abu Dhabi • Salem Ibrahim
• First Gulf Bank • Tan Rajah & Cheah
• Qatar National Bank • Wong Partnership
• Macquarie Bank • Dentons Rodyk & Davidson
• United Overseas Insurance • IRB Law
• AEP Investment Management • Lexcompass
• EFSOL Asset Management • Kalco Law
• Hawksford • CK Tan & Co
• Straits Law Practice
Source: Author’s own
• Fragmentation The additional unique risk arising from
There is no clear market leader in the Islamic finance is mainly Shariah non-
Islamic finance industry in Singapore. It compliance risk. The additional cost of
is arguable that many of the players do being Shariah compliant is attributed to
their business with a silo mentality with the following factors:
little cooperation or reliance from each
other. While there are deals transacted 1. Documentation – Aqd (ie contracts
by the main players, the total volume is based on Shariah concepts and may
not yet significant when compared to the affect the operational process flow
whole banking industry. vis-a-vis conventional version) are
to be drafted by lawyers who have
• Societal preception knowledge of Islamic finance. The
Islamic banking is not the main driver additional process of tweaking the
of banking businesses in Singapore. documentation to make it Shariah

© 27 5th July 2017


Continued
compliant increases legal costs and
the turnaround time for the client
to execute and complete the deal,
making many sales managers to
rely on conventional products as an
easier alternative for their clients.
(Note: Documentation includes
correspondence with customers
such as forms, letters and marketing
collaterals.)
2. Advisory – A Shariah advisory
team has to review and recommend
to the Shariah board for the final
endorsement on the documentation
and operational processes. This
additional step will incur advisory
costs.
3. Pricing – Islamic finance growth may
halt due to displaced commercial
risks. Because of the additional
turnaround time, legal costs and
advisory costs, the overall pricing
of Islamic products may be too
expensive, making them less
competitive than the conventional
counterparts.
4. Awareness – Product briefing
and regular refresher training are
required to ensure that staff are able
to communicate clearly to clients
how the Islamic product works.
Many locals feel religious decrees on
Islamic products are scanty decisions
of Shariah scholars who would
approve any financial structure under
commercial grounds. Nationwide
Islamic financial literacy programs
are still scarce.
• Legislation
The same level-playing field adopted by
MAS means that more concerted efforts
are required by the players to create
demand and supply. The MAS Islamic
banking guidelines rely on banks to
have Shariah governance and a sound
risk management process. This should
provide a leeway for banks to push
Islamic finance based on any available
standards (eg AAOIFI, Bank Negara
Malaysia, etc).
However, the current tax regime does
not incentivize Islamic finance players to
push the business further.
Islamic finance is not explicitly within the
ambit of the ‘economic’ aspect of Islam
as stipulated in Singapore’s constitution,
hence making such businesses to be
within the current regulations such
as the existing conventional banking
© 28
COUNTRY FEATURE
SINGAPORE
framework and code of conduct.
Proposals to boost Islamic
finance
The following are the proposals to boost
Islamic finance in Singapore:
• Harmonization
The AMLA is the highest legislation
regarding Islamic matters. Enacted in
1966, the AMLA empowers three key
institutions to govern Shariah compliance
in Singapore: the Islamic Religious
Council of Singapore or Majlis Agama
Islam Singapura (MUIS), the Shariah
Court and the Registry of Muslim
Marriages.
The AMLA is under the supervision of
the Ministry of Culture, Community and
Youth whose minister is also the minister
in charge of Muslim affairs. However,
such an arrangement gives a sense of
duality to Singapore’s system of personal
and family law only, covering marriage,
issues ancillary to marriage, dissolution
of marriage and inheritance.
The harmonization of the AMLA with
Islamic finance may result in a more
proactive top-down approach in boosting
Islamic finance businesses.
While such a strategy may be
time-consuming, a case study and
benchmarking with other secular
countries may help. Such countries
include the UK, Ireland, the US
and Australia as their jurisdictional
components are similar to those of the
Republic. This allows the Republic to
identify the best practices as a reference
point for improving the growth of
Islamic finance.
Alternatively, a consolidation of several
Islamic finance players will help. Similar
to how Shariah boards are formed on the
basis of Shura (ie religious consultation)
to approve Islamic products, a national
business working committee with
members from all the players can be set
up to understand the socioeconomic
situation and help set the Islamic
business direction based on Siyasah
Shariah (the basis and approach taken
by the government in the interest of the
people in line with Shariah principles).
• Empowerment
The Muslim minority has a special
place in the country. The Singapore
Constitution (1985:73) states it is the
duty of the government “to protect,
safeguard, support, foster and promote
their political, educational, religious,
economic, social and cultural interests
and the Malay language”.
The role of MUIS as per the AMLA is
“to administer matters relating to the
Muslim religion”. Where safeguarding
of the economic aspect is concerned,
having a central body to regulate Islamic
finance based on Muamalat (ie Islamic
commercial transactions) may resolve
the lacuna where MAS has clarified that
it will not determine what constitutes
‘Shariah acceptability’. MUIS and the
Shariah Court are already involved in
several aspects of Islamic finance and
asset management, namely:
1. Zakat
2. Waqf
3. Nazar Am
4. Ownership of immovable property
(such as a flat) under a joint tenancy
scheme
5. Nuzuriah
6. Hibah
7. Nomination process of financial
assets (such as the Central Provident
Fund, insurance, shares, deposits)
8. Jointly acquired matrimonial
property
9. A SG$25 million (US$18.15 million)
Musharakah bond issued to finance
the acquisition of a commercial
building on Beach Road.
Accordingly, an argument could be made
that the AMLA should be broadened to
include empowering MUIS or a specific
institution to look into the affairs of
Islamic economics.
• Paradigm shift
Islamic finance players may consider
turning challenges into opportunities in
view of the following characteristics of
Islamic finance in Singapore:
1. Low-entry barriers
2. Differentiation, and
3. Niche marketing.
The realization of Maqasid Shariah
by applying Islamic finance to
humanitarian efforts (in line with the
UN’s sustainability development goals)
and promoting socially responsible
investments and environmental social
5th July 2017

Continued
governance could be the solutions for
the public to understand the potential
of Islamic finance beyond profit
maximization as follows:
1. Many infrastructural projects to help
the poor in the MENA region were
done by the IDB.
2. Several banks promoted
financial inclusion by providing
microfinancing facilities to the needy
using Islamic structures; such projects
© 29
COUNTRY FEATURE
SINGAPORE
are successful in Malaysia, Indonesia
and Bangladesh.
3. The UN helped millions of displaced
Muslims in the Middle East and
has allowed the collection of funds
through Zakat.
Conclusion
Singapore is clearly supportive of Islamic
finance. While the Muslim community
and the Islamic finance players have to
spearhead Islamic finance at the working
level to capture the attention of potential
investors, the Singaporean government
can harmonize the current legislation to
empower a key institution to coordinate
Islamic finance activities. Public
education has to be ongoing until Islamic
finance is able to be used for financial
inclusion and promote humanitarian
welfare, eventually elevating the country
as an international financial center.
5th July 2017