Singapore Announces Launch Of Sukuk Trading

by Mary Swire, Tax-News.com, Hong Kong

27 January 2009

The Monetary Authority of Singapore (MAS) announced the completion of its sukuk (Islamic bond) issuance facility on January 19, which will provide Shariah-compliant regulatory assets.

Speaking at the signing ceremony held at Singapore’s monetary authority, Heng Swee Keat, Managing Director, MAS, said: “Today’s signing ceremony marks a further milestone in our developmental efforts. This sukuk is the Shariah-compliant equivalent of Singapore Government Securities (SGS), and is of the highest credit standing. The sukuk will be given equal regulatory treatment as SGS, such as qualifying as an asset in the computation of capital and liquidity requirements, and as eligible collateral for tapping MAS’s liquidity. MAS is committed to the facility, issuing to meet the needs of financial institutions that are carrying out or plan to carry out Shariah-compliant activities in Singapore, as this will strengthen their ability to meet their capital and liquidity requirements”.

V. Shankar, Group Management Committee member, Standard Chartered Bank, spoke about the unique structure of the programme at the signing ceremony. He said: “The size, maturity and pricing of each issuance will be determined in line with the investor requirements and the prevailing market conditions. Thus it will be a demand driven issuance to satisfy the needs of the investors."

Mr Shankar congratulated MAS for being the first central bank of a non-Muslim majority jurisdiction to come up with an ongoing local currency sukuk issuance programme. He added: "I hope this will become an important building block for the promotion of Islamic banking in Singapore."

Abdulla Hasan Saif, Chairman of Islamic Bank of Asia, said: "Not only will this initiative bolster Singapore’s efforts in becoming a leading Islamic financial centre, it may very well become a case study for other countries with similar financial sector requirements and aspirations. The Islamic Bank of Asia is looking forward to utilising the programme for regulatory requirements, to facilitate the development of a range of Sing-dollar, Shariah-compliant products that will cater to our customers' needs."

Abdulla Hasan Saif announced at the signing ceremony that IB Asia will be placing an order for the sukuk shortly, making Islamic Bank Asia the programme’s first investor.

The MAS also announced Singapore-based banks may enter into Murabaha interbank placements and offer Ijarah Wal Iqtina financing with immediate effect.

Ijarah Wal Iqtina financing is a kind of hire purchase agreement between the bank and the customer whereby the bank 'rents out' equipment or other assets to its client for a fixed lease period, after which ownership is trasnferred to the client.

These changes will enable Singapore's financial institutions offering Islamic finance a wider range of instruments in their management of liquidity and in their matching of assets and liabilities and have been made after detailed consultation with the industry.

In a statement MAS vowed to “continue to work closely with the industry to ensure that our regulatory and tax framework, and other necessary infrastructure and conditions are in place to foster good risk management and the further growth of Islamic finance in Singapore.”

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