ISLAMIC FINANCE TO PLAY IMPORTANT ROLE IN 2010

By Nor Baizura Basri

KUALA LUMPUR, Dec 31 (Bernama) -- Islamic finance that has garnered
tremendous interest in the face of almost two years of global economic crisis,
will have an important role to play come 2010.

As world markets come to grasp with the real strength of Islamic finance
to withstand the economic turmoil, Islamic countries especially have already
used it to strengthen their economic foundation.

Malaysia, being the frontrunner in Islamic finance with over 20 years
experience and has gone through three economic crises, must fully exploit the
potential of this industry.

Beefing up Islamic finance with a correct mechanism is the only way to go,
analysts say.

Next year could be even tougher and any external developments will not only
affect the current economic foundation but Islamic finance as well.

In the sukuk market, for example, trading activities and issuances slowed
down in 2009 due to lesser issuance of corporate bonds and Dubai's negative
credit news.

Among this year's highlights was the five-year US$1.5 billion Sukuk
Al-Ijarah issued by national oil corporation Petroliam Nasional Bhd (Petronas).

It marks a new era of bond and sukuk issuances in the country. It was the
single largest US dollar issuance by an Asian entity outside Japan this year and
also the largest international US dollar sukuk since the US$1.5 billion Dubai
Ports issue in 2007.

Known as the Petronas Emas (Gold) sukuk, it was part of a bond package that
also consisted of a US$3 billion conventional bond.

The Petronas Emas sukuk, together with the RM4 billion Sukuk Al-Musharaka
issued by Cagamas MBS earlier this year, are listed on Bursa Malaysia and also
on the Labuan International Financial Exchange and the Luxembourg Stock
Exchange.

Asian Islamic Investment Management Sdn Bhd chief investment officer Chan
Cheh Shin said Malaysia had continuously promoted and solidified its efforts to
make the country a prominent sukuk player.

Chan, who oversees RM730 million assets under management, said both the
government and private sectors had played their part in the issuance of
benchmark-size sukuk bonds.

"Local players can and should build on the government effort in promoting
Malaysia's name as the Islamic financial hub. The issuer and originator should
step up their efforts on issuing and originating debts in the sukuk form," he
told Bernama.

He said that as the economy recovers, companies would be more willing to
borrow. Thus, sukuk issuance would increase, he said.

The recent policy to allow non-Islamic banks to participate in
Shariah-compliance products was also a welcome step in promoting and retaining
foreign interest in the industry, he added.

Whether Malaysia is still a forerunner in the global sukuk market, he said:

"Malaysia is way ahead in infrastructure and has a ready pool of investors
for sukuk. Thus, it is a serious contender as a hub in Asia. London may dominate
the European space."

In Islamic banking, all eyes will be on the country's new recipients of
Islamic banking and family takaful licences.

With the new boys jumping onto the bandwagon, competition for a slice of the
industry pie would be much tougher and stronger.

Therefore, it is imperative for the existing Islamic banking and takaful
players in the country to enhance their ability and create more innovative
products suitable for the public.

Bank Negara Governor Dr Zeti Akhtar Aziz recently confirmed that the country
had shortlisted two foreign banks to be licensed as mega-Islamic banks with a
minimum capital of US$1 billion each.

She said applications for the two mega-Islamic banks were still being
processed and an announcement would be made by the end of the first half of
2010.

Currently, Malaysia has 14 wholly-owned foreign banks, both conventional and
Islamic, and may give another five banking licenses by 2012.

Islamic banking accounts for 18.8 per cent of Malaysia's total banking
assets.

Dr Zeti pointed that the inherent features of Islamic finance were among the
factors that contributed to the country's financial stability.

She said Malaysia had continuously been involved in strengthening the
Islamic finance architecture to ensure the industry's stability and resilience.

Malaysia is also keen to enhance the international dimension of Islamic
finance through linkages not only with international financial centres, but also
with those in the emerging countries of the Middle East, Africa, Central Asia
and even Latin America.

"It is in the latter areas we believe that economic recovery will be the
fastest. Bilateral trade is still important, but we also need strategic
alliances and Islamic finance can play an important role in this respect," Zeti
said. (US$1=RM3.42)
-- BERNAMA