Brunei Darussalam, the small Islamic sultanate situated on the northwestern coast of Borneo, plans to set up its own offshore financial hub, and the news has been well-received in Labuan, the territory ceded by Brunei Darussalam to the British in the 19th century, which is building up its own offshore sector.
According to the director general of the Labuan Offshore Financial Services Authority (Lofsa), Mohd Razif Abd Kadir, Brunei's plans could well be a boon rather than a threat to the Labuan International Offshore Financial Centre (IOFC). He said that instead of operating individually, Lofsa and Brunei can and should work together for mutual benefit. He said 'Although Brunei's plan is a surprise to us as we have been assisting them in certain areas, we see it as a healthy development.'
It was reported last week that the oil-rich sultanate has formed a special unit under its finance ministry to spearhead the project to set up an international financial centre. Morover, Brunei has apparently begun to hire foreign professionals from established offshore centres such as Bermuda, the Cook Islands and indeed Labuan, to supervise the establishment of its offshore sector.
Brunei will offer both conventional and Islamic financial facilities, the latter tapping into the rapidly expanding market of Islamic finance and investment, and in doing so will pit itself directly against Labuan. However, Razif said that this was a positive move rather than a damaging one for Labuan, as the two centres could work together to jointly promote and expand their offshore sectors.
Razif stressed the vast potential of Islamic banking, which has yet to be fully tapped, would provide a good deal of scope for Brunei and Labuan to work together: 'Currently, most players (from the Islamic countries) still place their funds in the conventional financial centres... we have not really tapped such opportunities. They (Islamic countries) are currently willing to sacrifice profits just to ensure that their funds are parked with a permissable counter like those on the London Metal Exchange.' Razif added that given the huge market potential and the challenges involved in developing a reputable offshore sector, a collaboration would be better placed to succeed.
Brunei has said it has an edge over Labuan both as a financial centre and an international Islamic money market, with nine foreign banks, including HSBC, Standard Chartered, Citibank, Maybank, RHB Bank and Overseas Union Bank, having already established themselves as commercial retail banks there. The local banks are Islamic Bank of Brunei, Development Bank of Brunei and Baiduri Bank. According to Brunei's deputy finance minster Selamat Munap, the sultanate's efforts to establish an offshore centre come as part of a raft of measures designed to restructure the economy following the collapse of the country's investment arm, Amadeo Corporation. The project, which will have no shortage of funding from the country's vast reserves, is under the supervision of the newly-established Brunei Darussalam Economic Council.
Of the proposal by Indonesian President Abdurrahman Wahid for Malaysia, Brunei and Indonesia to establish a new financial centre, Razif commented 'It is up to the Government to decide.'
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