peter pang : islamic capital and money markets welcoming remarks by mr peter pang, deputy chief executive, hong kong monetary authority, at the workshop on “ islamic capital and money markets ”, hong kong, 19 march 2013. * * * distinguished guests, ladies and gentlemen, 1. it is my great pleasure to welcome you to this islamic finance workshop. we are particularly grateful to mr. mohd. radzuan, mr. azidy and mr. azahari, the experts from malaysia, who have flown all the way to hong kong to share with us their knowledge on islamic capital and money markets and their valuable experience in developing these critical components of islamic finance. i would also like to thank mr. najmuddin of bank negara malaysia for bringing the malaysian delegation here. two fast developing asset classes in the global markets 2. this workshop comes at a very opportune time as hong kong is looking to develop islamic finance as a way to diversify our financial platform and further enhance our capability as an international financial centre. in my view, to be a truly international financial centre, one needs to develop a conducive platform for the two fast developing asset classes in the global markets – islamic financial products and rmb - denominated investment assets. 3. the development of islamic financial markets has been phenomenal in the past two decades. the size of global islamic finance assets made a quantum leap from only us $ 150 billion in the mid - 1990s to us $ 1. 3 trillion at the end of 2011. 1 although the investment climate has been clouded by the us sub - prime crisis and the european sovereign debt problems in recent years, the global sukuk market is powering ahead. indeed, last year was the best year for the global sukuk market on record, with sukuk issuances growing by more than 60 % year - on - year, taking the outstanding sukuk amount to a new height of us $ 240 billion. 2 according to some market estimates, the size of the global islamic finance industry has the potential to increase five - fold from the current level to some us $ 6. 5 trillion by 2020. 3 4. the development of rmb - denominated investment products is equally impressive. in a short space of 6 years, the size of the rmb dim sum bond market in hong kong has grown from a modest amount of 10 billion yuan in 2007 to 237 billion yuan at the end of 2012. offshore rmb

financial products have also become more diversified, expanding from only rmb bonds to rmb equities, rmb investment funds, rmb a - share exchange - traded funds ( etfs ) as well as rmb insurance products. the growth momentum of the offshore rmb financial markets is expected to pick up further, as more and more financing and investment activities can now be conducted in rmb, especially following the introduction by the mainland authorities of the arrangements for inward and outward direct investments in rmb and the rmb qualified foreign institutional investors ( i. e. rqfii ) scheme. 5. hong kong is fortunate to have made a good start in offshore rmb business. since the introduction of offshore rmb business in 2004, we have developed a wide variety of rmbdenominated financial products. in particular, the offshore rmb bond market in hong kong is by far the largest in the world. we also possess the largest rmb liquidity pool outside of kfh research. zawya. kfh research. bis central bankers ’ speeches mainland china. as at the end of 2012, the aggregate amount of rmb customer deposits and certificates of deposits has reached a high of 720 billion yuan. notwithstanding these, when it comes to islamic finance, hong kong is a relative newcomer and would need to catch up in this area. legislative exercise to promote the development of sukuk market 6. in developing islamic finance, we are taking a step by step approach. as a first step, our current focus is to put in place the supporting legal infrastructure. specifically, the hksar government is set to change the tax laws in hong kong to facilitate the development of the sukuk market. in terms of economic substance, sukuk are no different from conventional bonds. however, since islamic law prohibits the payment and receipt of interest, sukuk are often structured with the use of special purpose vehicles and multiple transfers of underlying assets. this may result in additional tax liabilities and hence higher issuance costs for sukuk when compared with conventional bonds under the existing tax regime. 7. it is therefore necessary to refine our tax laws to provide a tax framework for sukuk that is comparable to the one applying to conventional bonds. but this does not mean that we are going to confer special tax favours on the islamic finance sector ; rather, our aim is to level the playing field so that financial instruments of similar economic substance will be given similar tax treatments