CAIRO — The Southeast Asian city-state of Singapore launched on Monday, January 19, its first sukuk (Islamic bond) program with an eye on promote Islamic banking and establishing itself as a new Islamic finance hub in the region.
"This sukuk is the Shari`ah-compliant equivalent of Singapore Government Securities (SGS), and is of the highest credit standing," Heng Swee Keat, Managing Director of the Monetary Authority of Singapore (MAS), told the Singapore Sukuk Signing Ceremony.
Sukuks, which conform to Islam's prohibition of receiving or paying interest, typically work as profit-sharing vehicles.
Companies that issue Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest.
But money can not be invested in alcohol, gambling, pornography, tobacco, weapons or pork.
"The sukuk, which is based on the Al-Ijarah structure, has been carefully studied by the eminent Shari`ah scholars advising the Islamic Bank of Asia and Standard Chartered Bank for its full compliance with Shari`ah principles," stressed Keat.
The program, worth a total of S$200 million ($134 million), allows the central bank to issue Islamic bonds if there is demand from investors.
Singapore has an eye on Middle Eastern petrodollars and rising demand for ethical investing.
"Sukuk issuance is still gaining acceptance in the Gulf as one of the preferred means of investment and financing, at a time when infrastructure project spending in the Gulf is estimated to reach $1 trillion," notes Afaq Khan, CEO of Standard Chartered Saadiq; the global Islamic banking business of Standard Chartered Bank.
The Sukuk market has reached $111.9 billion in the eight years to 2008 and a further $69 billion is expected to be issued in 2008/2009, according to the International Islamic Financial Market.
Singapore, Southeast Asia's financial capital, wants to establish itself as a new hub for the globally-thriving Islamic banking industry.
"Singapore is committed to the development of Islamic finance," said Keat.
"The financial industry has encouraged us to develop Shari`ah compliant financial services, by building on our existing strengths in banking, trade finance, capital markets and asset management."
Singapore will face a major challenge from neighboring Malaysia, already a hub for Islamic banking and finance.
Islamic finance is already one of the fastest growing sectors in the global financial industry.
The Islamic banking industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.
