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There will be no separate banking regulatory framework for Islamic financing in Singapore.
Instead, the Monetary Authority of Singapore said it would promote Islamic financing using the existing regulatory framework.
In what is seen as a step forward, the central bank announced on Thursday that all banks would now be allowed to offer an important form of Islamic finance known as Murabaha.
According to the central bank, not having a separate regulatory framework could make it less burdensome for Islamic banks to set up shop here.
Heng Swee Keat, Managing Director, MAS, said: "As many of the supervisory processes and prudential measures are common to both conventional and Islamic banking activities, MAS' assessment is that there is no need to create a separate islamic banking supervisory framework in Singapore. Hence, MAS is open to admitting Islamic banks based on prudential criteria for admission."
From Thursday, all banks will be allowed to offer Murabaha which is commonly used as short-term financing and in trade finance.
It is a contract under which a client wishing to buy some items requests the Islamic bank to purchase them and sell them to him at cost plus a declared profit.
Mr Heng said: "Previously, MAS regulations impose broad restrictions on banks against conducting non-financial activities. Starting from Thursday, MAS will exempt Murabaha financing, which requires the banks to purchase goods on behalf of its customers, and to sell the goods to the customer at a mark-up, from this restriction."
The move is seen as significant.
Ahmad Khalis A Ghani, Chief Executive Officer, IFIS Business Advisory, said: "With the allowing of Murabaha processes, it will allow banks to develop many syariah-compliant products, whether in the retail side, trade financing and other services as well. There are also many bankers in Singapore who are able to create interesting financial products. With this talent, if we assimilate with expertise in Islamic banking, it will position as an interesting, reliable financial hub, with Islamic expertise in its suite."
The MAS sees explosive growth ahead for Islamic financing.
Mr Heng said: "Globally, we see all areas of islamic capital markets growing rapidly. Global asset size for Islamic finance is estimated at between 200 and 400 billion US dollars - and growing at 15 percent per annum. Global issuance of sukuk is expected to top US$10 billion this year, compared with just US$2 billion in 2003."
Rising oil prices are helping the push towards Islamic finance in the region as cash-rich businesses in the Middle East look for opportunities to raise their exposure in Asia.
Mr Heng said: "Asia is estimated to need over a trillion dollars in infrastructure financing in the coming years to build power plants, gas pipelines, toll roads, airports and telecommunication systems."
The MAS said all these projects were well-suited for Islamic financing. - CNA /ch
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