There have been moves recently to strengthen Islamic finance in the Association of Southeast Asian Nations , or Asean, which were spearheaded by the country with the largest global market share in Shariah finance, Malaysia.
New Malaysian standards for Shariah-compliant equities that are expected to attract more Islamic investment funds from Gulf countries have been introduced last week by the Malaysian Securities Commission. A revised list of Malaysian equities that qualify for Islamic investment, compiled by the SC, took effect on November 29 .
It uses an improved screening methodology that encompasses quantitative filters such as benchmarks for financial ratios, moving closer to the approach generally used in the Gulf. The change is widely expected to help further internationalise Malaysia’s Islamic finance industry.
The methodology had previously included only qualitative screens; for example, it banned companies involved in sectors such as tobacco, alcohol, weapons and gambling. Islamic fund managers in Malaysia now have six months to drop securities that are excluded from the list, which currently has a total of 653 Shariah-compliant stocks out of 914 listed on the Bursa Malaysia.
In another move, the Philippine Stock Exchange has said that it will in December this year designate its first Shariah-compliant companies, in a bid to keep Muslims’ money in the country rather than see it being sent to Islamic markets abroad, and, on the other hand, attract foreign Islamic investors. Up to 50 companies out of about 300 listed on the exchange qualify for Shariah-compliance, and the list could eventually support the creation of a Shariah index on the exchange.
Over the past few months, the Philippine central bank has been pushing several initiatives to develop the Islamic finance sector and encourage financial inclusion of the Muslim minority. The central bank has also asked congress to have its charter amended, a move that would allow it to provide Shariah-compliant instruments to Islamic banks, in particular interbank lending products. Another strengthening player in the sector is Singapore. The city state has been following the ambition of becoming a new regional centre for Islamic finance, mainly in direct competition to Malaysia.
The government has undertaken initiatives in areas such as taxation, capital markets, REITs, takaful insurance and Islamic equity indexes in order to improve Singapore’s attractiveness for Islamic finance. DBS Bank has already taken the lead and launched the Islamic Bank of Asia to focus on corporate capital markets and private banking services. Singapore can certainly capitalise on its proximity to Indonesia , where demand for Islamic finance is huge but options are few, and also benefit from the rising interest in Shariah banking from China – by utilising its new role as Asia’s yuan renminbi trade centre.