Is there really potential for Islamic Finance to grow in Singapore? (Part 2)

Continuation from http://helmihakim.com/investment/is-there-really-potential-for-islamic-finance-to-grow-in-singapore-part-1/

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In my opinion, the secret recipe to the success in the development in Islamic finance in Singapore is to build our foundations and platform right locally first and then, scale it, expand globally.

I have listed the steps.

  1. Build up our strong foundation of Islamic Finance for our local population first and then expand globally.
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    The first crucial step is to introduce murabahah financing for Singaporeans who want to purchase our properties the shariah compliant way, as an alternative to conventional mortgage loans.
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    No individual or entities in Singapore will give Qard Hassan, also known as interest free loan to our local population.
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    Even if there are willing, charitable individuals/organisations, they are too few among us. The most pragmatic way is to set up the strong foundation, where transactions with mutual benefits can be established, yet it is shariah compliant.
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    The success of any business endeavour lies on MARKET DEMAND.demand_new
    Everyone needs a roof on our head
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    Murabahah financing is a good start. Under Murabahah financing, financial institution earns profit from a mark up of the cost price payable over number of financing years, while the buyers pay instalment yet do away with interest based transactions. Mutual Benefit! 🙂
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    There are other shariah compliant financial instruments, that financial institutions can look, to introduce or expand in the market.
    Some examples:
    Restricted and non restricted mudarabah account
    Shariah Compliant Fund (already available in NTUC Income Cooperative)
    Musharakah (Partnership between financial institutions and business owners on profit/loss sharing basis)
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    2. Enhance Competitiveness Of Shariah Compliant Products in Singapore
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    Example again in murabahah financing.
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    The effective profit rate earn by financial institution needs to be comparable with the effective interest rate by conventional financing facilities.
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    If we can create and maintain competitive shariah compliant instruments on a small scale on a profitable note, to make it bigger, and bring it to a global scale will be easier.
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    In my interaction with Non Muslims from other countries, they like shariah compliant products in their country due to salient advantages.
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    Example, competitive rates as compared to conventional ones and other benefits like, having one month “instalment holiday” at the end of the year, where they don’t have to pay for mortgage instalment for that particular month.
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    3.Tax Exemption to smoothen certain process pertinent to Islamic Finance
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    Again, example, in a transaction like Murabahah financing for properties.
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    The seller has to transfer the ownership to the financial institution and the financial institution has to transfer again to the buyer.
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    The transfer of properties or risk of ownership specifically is essential in Murabahah and cant be compromise.
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    Remove in between tax from such transactions, as it will add cost and reduce competitiveness in such financing activities.
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    4. Work with financial consultants and property agents
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    Financial consultants and property agents are the frontline who deals with customers on financial transactions, every single day.
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    Work with us.
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    When sharah compliant instruments are introduced, we already have the database of clients, who are interested in shariah compliant products.
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    Though our jobscope may seems more of an advisory role, we have been trained to sell. In order for the take up rate for shariah compliant products to skyrocket, it has to be sold. Incentivise the whole process. It is wishful thinking, to assume that shariah compliant products will move on its own, when introduce to the market.
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    Education is also a key to the success of the promotion of a particular financial instrument. Engage us the practitioners by introducing educational grants and training schemes, that we can use to upgrade ourselves, specifically on Islamic Finance.
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    5. Ability to sell cross borders transactions
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    From my understanding, financial consultants in Singapore can only sell to locals.
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    If we want to sell to foreigners, they must have a FIN number.
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    Usually, they are PRs, Employment Pass, S Pass or Work Permit holders.
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    Singapore has its advantages of its strong Singapore Dollar. Foreigners will love to diversify their investments, and if Singapore allows for such cross border transactions with stringent underwriting, that will help. Imagine money flows from neighbouring countries with sizeable Muslim population….
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    Of course, this is just my thoughts as a practitioner in Singapore.
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    After all the above has been done, only then Singapore is poised to attract the petro-dollars from the Middle East.
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    Singapore, with its solid, working blueprint specifically on development of shariah compliant products, coupled with its inherent strengths is just a step away to champion Islamic Finance worldwide.
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    What is needed then is just to identify what works on a small scale domestically, and expand it further, worldwide.

 

p.s. By the way, if you wish to discover a simple & halal way to create a positive monthly cashflow and calculate your net worth for FREE, then please click here…

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- who has written 419 posts on The Official Helmi Hakim Website.

A certified financial consultant, Helmi Hakim has won praise for his patience, perseverance and practicality when solving his clients’ financial concerns. For more information on how you can manage your finances better, contact Helmi Hakim at 96520134.


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