Bank Negara Malaysia awarded two foreign currency Islamic banking licences to companies in Kuwait and Indonesia as it seeks to broaden the country's syariah finance success beyond its domestic market.
Kuwait's Al-Aqeelah and Bank Muamalat Indonesia have been granted licences to do Islamic banking business in Malaysia with residents and non-residents in foreign currencies and limited ringgit transactions, Bank Negara deputy governor Mohd Razif Abdul Kadir said yesterday.
"The process of setting up takes time, a few months perhaps," Mohd Razif said in an interview in Kuala Lumpur.
"Not only are we reviewing (more applications), we are driving hard."
Malaysia is a key player in Islamic finance, but some critics say its success has largely been domestic where active Islamic debt issuance has made it the world's largest syariah bond market.
About US$66 billion (RM240 billion), or 62.6 per cent, of global outstanding syariah bond issuance as at end-June was from Malaysia.
The country now hopes to replicate its success in Islamic bonds in the international syariah banking and insurance and fund and wealth management businesses.
Foreign currency Islamic banks are given a 10-year tax exemption up to year of assessment 2016 on income earned from foreign currency syariah banking business.
"In terms of tax incentives, I think we are on par with the Middle East," Mohd Razif said.
Malaysia's market regulator recently awarded Islamic fund management licences to several foreign firms, including Kuwait-based Global Investment House, India's Reliance Capital, Kuwait Finance House and DBS Asset Management, a subsidiary of Singapore's DBS Group.
Mohd Razif said Islamic bonds, or sukuk, were now a mainstream investment with competitive pricing helping to broaden their appeal beyond the traditional Muslim investor base.
"In terms of the credit risks, it's the same," he said. "It's only the structure that's different. It's not difficult to sell to investors.
"The pricing is very competitive because the Islamic funds are so huge from the Middle East and Malaysia so that pushes down the price. Maybe a certain portion of investors purchase sukuk because of their religious conviction, but the bigger portion of the investors are actually conventional investors." - Reuters
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