Jacqueline Loh: Enhancing linkages between Asia and the Middle East
Welcome address by Ms Jacqueline Loh, Deputy Managing Director of the Monetary
Authority of Singapore, at the 6th World Islamic Banking Conference Asia Summit,
Singapore, 3 June 2015.
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Your Excellencies, distinguished guests, ladies and gentlemen, good morning. To all our
foreign guests, a warm welcome to Singapore
Introduction
1. I am very honoured to be invited to deliver the Welcome Address for the 6th World
Islamic Banking Conference Asia Summit. I am pleased that this conference continues to
attract a growing number of industry professionals from Asia and the Middle East, with total
attendance more than doubling since it was launched in 2010. This underscores the bright
prospects for Islamic finance in Asia.
Growing Asia-Middle East connectivity
2. Trade and investment flows between Asia and the Middle East have grown
substantially over the last decade, supported by strong domestic demand and investment
opportunities in both regions. This growing connectivity is expected to strengthen in the
coming years, notwithstanding uncertainties in the global outlook. Let me share 3 key
observations.
3. Firstly, trade between the two regions continues to grow strongly. In the past
decade, exports from the Gulf Cooperation Council (GCC) to Asia expanded five-fold, and
growth of GCC's exports to Asia has surpassed that to the rest of the world. Asia's exports to
GCC have also increased five times, registering an annual growth rate of 15% over the past
ten years.
4. Secondly, inter-regional investments are growing. Investments into the GCC are
being driven by several positive factors: infrastructure development to cater for its
hydrocarbon sector, rapidly-growing populations, market liberalisation and diversification
beyond oil and gas. A 2014 industry survey1 by Mergermarkets highlighted that investments
from Asia into the GCC would soon equal that traditionally sourced from Europe, as Asian
companies become more active in the Middle East. The converse is also true. Attracted by
Asia's good growth prospects, GCC investors have increased their investments not just in
energy markets, but also in telecommunications, finance, and other industries in Asia. For
instance, GCC state-owned oil firms have been investing in ASEAN energy sectors, while
GCC Sovereign Wealth Funds (SWFs) are also showing interest in the agriculture sector
across ASEAN.
5. Thirdly, continued growth of GCC and Asian economies, and an expanding network
of Free Trade Agreements, will reinforce connectivity between the regions. Notwithstanding
more volatile and lower oil prices, the IMF expects the GCC to expand 3.4% in 20152, and
3.2% in 2016. Asia will remain the world's fastest growing region, recording 5.6% growth in
2015, before easing slightly to 5.5% in the following year. Trade and investment linkages will
be strengthened with the conclusion of trade discussions between GCC and China, Korea,
India, Pakistan, Malaysia and ASEAN. Singapore has already concluded a comprehensive
FTA with the GCC, which recognises Islamic finance in the definition of financial services.
Cross-border Islamic finance set to grow
6. The global Islamic finance industry has been on an upward trajectory in the past
decade, with total assets exceeding US$2 trillion in 2014, from US$700 billion in 2005. Most
of this demand stemmed from Middle East and Asia, and stronger trade and investment
linkages between these regions will reinforce the growth momentum in Islamic finance.
Looking ahead, the following key trends will also augur well for the outlook for cross border
Islamic finance:
7. First, increasing wealth accumulation in the Middle East region. This will expand the
pool of Islamic funds seeking diversification into foreign investments. Asia will be a key
investment destination, as stronger growth prospects compared to developed economies
present opportunities for higher investment returns, which would in turn, increase the
demand for Shariah-compliant assets in Asian markets, including Singapore, Malaysia and
Indonesia. Reflecting this trend, GCC banks have already been expanding their operations in
Singapore in recent years to support the deployment of Islamic funds to corporates in the
region, through Islamic bank financing, and sukuk issuances.
8. Second, more countries are boosting their Islamic finance services and capabilities,
in response to the growing demand for Islamic finance solutions. Singapore, for instance, has
seen a steady increase in Islamic finance activities, while Hong Kong has recently issued its
second sukuk and Japan is amending its financial regulations to facilitate Islamic financing.
9. Third, there is scope to extend Islamic finance solutions to meet infrastructure
financing needs in Asia and in the Middle East. In particular, the Asian Development Bank
(ADB) has been working with the Islamic Development Bank (IDB) to provide Islamic
infrastructure financing solutions to their member countries in these two regions. This
includes developing and participating in innovative financing structures such as the Islamic
Infrastructure Fund and the International Islamic Liquidity Management Corporation. The IDB
is also exploring a potential link-up with the planned Asian Infrastructure Investment Bank
(AIIB). This could spur the use of sukuk to fund some of Asia's infrastructure needs, and tap
a growing pool of Islamic investors across the Middle East and Southeast Asia.
Islamic finance in Singapore
10. As an international financial centre and one that serves as a gateway for
investments into Asia, Islamic finance is an important asset class that complements
Singapore's strong conventional financing and capital market capabilities. Islamic finance
activities in Singapore are broad-based, covering Islamic banking, asset management and
capital markets, which mirror our conventional strengths:
• Islamic banking assets in Singapore have grown by 73% since 2010, and are
increasingly cross-border in nature. Consistent with the pattern for conventional
finance, Islamic banking liabilities sourced from the region are subsequently
deployed to Southeast Asia and the GCC;
• Assets under management have also risen, by 22% since 2010. Singapore is home
to Sabana REIT, which is the largest Islamic REIT globally by asset size. In 2013,
Sabana also launched a corporate sukuk programme in Singapore to help finance
its purchase of industrial properties; and
• Islamic capital market activities have also taken off, with 31 sukuk issuances over
the last five years. We have more sukuk issuances than other conventional
jurisdictions, with total outstanding issuance reaching a high of S$3.8 billion in 2014,
compared to S$440 million in 2009.
11. To support the development of Islamic finance in Singapore, MAS established a
Sukuk Facility in 2009 to provide SGD Islamic regulatory assets for banks undertaking
Islamic finance activities here. We remain the only conventional central bank to have done
so. There have been 8 issuances to-date totalling S$600 million, supported by robust
demand, with the latest issuance in November 2014 being our largest yet. Our sukuk
programme has facilitated the growth of banks' Islamic finance assets in Singapore, and also
encouraged corporates to issue sukuk to meet demand from financial institutions and
investors.
12. Going forward, we will continue to strengthen our Islamic finance regime and
capabilities to enable us to support opportunities from deepening trade and investment
linkages between Asia and the Middle East, as well as infrastructure projects within the Asian
region. In infrastructure for example, an estimated US$60 billion will be needed annually until
2022 to meet the basic infrastructure needs in ASEAN alone3. The asset-backed nature of
Islamic finance makes sukuk ideal for financing of infrastructure projects and would
complement ongoing work by Singapore to enhance the bankability of infrastructure projects
in the region and involve more capital market participants.
13. In the meantime, it will be important to continue to strengthen key foundations such
as global regulatory standards and best practices for Islamic finance, and capacity building
and talent development. To facilitate further growth of Islamic finance in Singapore, MAS is
working with the industry and other government agencies to provide clarity and certainty in
the regulatory and tax treatment for sukuk. For example, some industry players have
suggested that pre-approved standardised templates for common sukuk structures could be
introduced to expedite issuance.
14. Building Islamic finance expertise has also been highlighted as crucial to supporting
the continued growth of the industry. The Singapore Management University's (SMU)
International Islamic Law and Finance Initiative is now in its 6th year, and seeks to carry out
research and develop thought leadership in Islamic law and finance, in collaboration with
institutions in UK, Malaysia and Indonesia. SMU also offers a Masters in Islamic Law and
Finance, and will be graduating its third cohort of students this year. In addition, Islamic
finance has also been included as an eligible subject area under MAS' Finance Scholarship
Programme, and industry players could look to tap on this scheme to groom promising talent.
Conclusion
15. To conclude, the deepening linkages between Asia and Middle East will continue to
present significant opportunities for Islamic finance. I hope the WIBC Asia Summit will
provide a useful platform for various stakeholders from Asia, Middle East and beyond, to
explore new ideas and build networks to catalyse further growth. I wish all of you a fruitful
conference.