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    01:09 PM Debby Lim (Partner, Shook Lin & Bok LLP)

    Event Note: Islamic Banking & Finance Law Conference

        

    Introduction

    On 31 March 2016, the Singapore Academy of Law and The Malaysian Current Law Journal jointly conducted an Islamic Banking & Finance Law Conference at the Supreme Court Auditorium. The Conference was an international gathering of practitioners, scholars and experts sharing their knowledge, expertise and experience on the principles, instruments and issues relating to Islamic finance.

    The distiguished speakers featured were: Hooman Sabeti-Rahmati, Suhaimi Zainul-Abidin, Jal Othman, Dr. Rifki Ismal, Andrew White, Dato’ Mohamed Ismail Shariff and Wico Yeo.

    This event note sets out some of the highlights of the event.

    Basic Sukuk Banking and Finance Laws

    Mr Hooman Sabeti-Rahmati of SDF Partners (Private) Limited was the first speaker of the Conference, presenting a succinct overview of basic sukuk banking. For members of the audience that were less familiar with Islamic finance, this was an excellent 15-minute primer. Mr Hooman explained that bonds are simply loans whereas sukuk involves the packaging of underlying contractual arrangements into securities. He also introduced the basic laws relevant to structuring and issuing a sukuk. Through the use of a diagram, Mr Hooman provided a useful illustration of the basic sukuk structure and the relevant parties involved.

    Introduction to Islamic Banking and Finance Regulations in the Southeast Asia Region

    The second session was an introduction to Islamic banking and finance regulations in Singapore, Malaysia and Indonesia, with the experts from the respective countries providing insights on the changing dynamics in the region.

    Mr Suhaimi Zainul-Abidin started with a timeline depicting the significant Islamic banking and finance transactions in Singapore. The first milestone was the setting up of the Mendaki Growth Fund in 1991.

    Essentially, MAS has opted to regulate Islamic banking under the existing banking regulatory framework. In the past 20 years, there has been a fair amount of activity in Singapore’s Islamic finance scene. However, as Mr Suhaimi highlighted, the growth of this sector has somehow stagnated as compared to other countries in the region.  The regulatory intent appears to be geared towards making Islamic finance available in Singapore by leveling the playing field between Islamic finance and other forms of finance.

    Dr. Rifki Ismal gave an introduction to the development of the Islamic finance industry in Indonesia. As the largest Muslim country, Indonesia has a highly differentiated micro- and rural finance sector which has evolved over more than a century. It is the leading purveyor of Islamic microfinance which includes the units of the BRI Microbanking Division, the rural banks, various types of cooperatives and the village banks.

    Although Indonesia is currently lagging behind Malaysia, the growth of the Islamic Finance industry is estimated to more than double in the next five years based on road maps prepared by Indonesia's Financial Services Authority, or OJK, for the development of various shariah finance sectors.

    The government's ambitious infrastructure investment decision is considered the biggest enabler of such growth by paving the way for the Islamic finance ecosystem to flourish. Indonesia is currently the leading Sovereign Sukuk issuer in the world and is likely to host the headquarters of the Islamic Mega Infrastructure Bank.

    Mr Jal Othman gave a presentation on, inter alia, the Islamic Financial Services Act (IFSA) which came into effect in 2013, Shariah compliance and standards and the role of the BNM Shariah Advisory Council. Unsurprising, the Islamic finance industry in Malaysia has seen exponential growth, enabling Malaysia to position itself as an Islamic investment gateway to the world.  Currently, Malaysia accounts for almost three-fifths of the global sukuk market and it is the world’s second-largest Islamic banking market

    Dispute Resolution

    In order to support growth of Islamic finance, a suitable dispute resolution mechanism is necessary. Shariah courts do not handle commercial disputes whereas secular courts are unfamiliar with Shariah principles. As the Quran emphasises the importance and benefits of settling disputes quickly and discreetly, arbitration is a method that can be used to achieve this. When parties have carefully considered and drafted arbitration clauses in their Islamic finance agreements, they can have greater assurance that any disputes which may arise will be resolved in an equitable, confidential and Shariah compliant manner.

    The Kuala Lumpur Regional Centre for Arbitration (KLRCA) has implemented Arbitration Rules for Islamic arbitration, which help support Malaysia’s aspiration to be the regional hub for Islamic finance. These innovative rules provide for the referral of Shariah issues or matters to one of the two Shariah Advisory Councils in Malaysia. This makes it possible for parties to actually refer their disputes to a non-Muslim tribunal.

    Panel Discussion and Further Food for Thought

    The final session was a panel discussion where Mr Yeo and Mr Jal Othman analysed a transactional sukuk case according to the laws of Singapore of Malaysia.

    The Conference was certainly an interactive one, with numerous questions and contributions from the audience. The panelists were invited to comment on Islamic finance’s role in the ship finance market. According to Mr Jal Othman, the maritime sector offers Islamic financiers suitable assets for traditional Islamic financing structures, for instance vessels over which security can be taken.

    There were a number of thought provoking issues thrown up, especially in relation to the outlook for Islamic finance in the current economic climate. The prolonged slump in crude oil prices is crimping the growth of Islamic finance. Financial institutions in Gulf States, which have underwritten Islamic sukuk for years, are now facing difficulties in doing so. But the general view is that demand for Islamic finance will increase in the long term, with the world's Muslim population being expected to increase to 2.2 billion by 2030.

    * This blog entry may be cited as Debby Lim, “Event Note: Islamic Banking & Finance Law Conference” (26 April 2016)  (http://www.singaporelawblog.sg/blog/article/158)

    ** A PDF version of this entry may be downloaded here

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