Dr Angelo Venardos gave an overview of his book which is the title of the tête-à-tête. He recalled the ideas that led him to undertake research on Islamic banking. It all started when the offshore industry came under threat by the OECD and there was a need to look for an alternative. The author noted a gap in the market which could provide such services(Islamic banking); he was also intrigued by the example of Brunei, which practises English common law but is an Islamic state. According to Dr Venardos, the answer to filling the gap in the market lies in Singapore, which is already established as the Zurich of the region in private banking wealth management.
The book provides some background knowledge on the five pillars of Islam, the spread of Islam and the development of the English common law in Southeast Asia. World War II which brought about the end of the colonial period led to the development of markets in countries which gained independence, eg. Malaysia, Singapore. There are also two different markets that can be identified: the corporate market and the retail consumer market.
Dr Venardos outlined some challenges in Islamic banking. Firstly, there are five schools of thought and many differences in the interpretation of the Shariah law. Islamic products are community-based and not profit-driven as opposed to commercial products. Islam also forbids investment in “sex, drugs and rock-and-roll” type activities, e.g. casinos, hotels. The author noted that those who excel in Islamic banking are often trained in both Islamic law and the English common law system. It is best if Muslims themselves can develop Halal products and ensure the standards in Islamic banking are adhered to and not corrupted. They are the best people to set a “model” for others to follow. Islamic banking is essentially about bringing together the religion within a commercial environment. However there needs to be a global regulatory control of the system.
Some of the countries that are beginning to invest in Islamic banking include Malaysia, Indonesia, Bruneiand Singapore. Malaysia currently captures 10 percent of its domestic banking market. Courses are also being offered in universities and the government is targeting to capture 20 percent of the market by 2010. Meanwhile Singapore has jumped into the action, with Senior Minister Goh Chok Tong leading trade delegations to the Middle East. The Republic has also been admitted to the IFSB, which is the Islamic equivalent of the IMF. In addition, NTUC and KeppelLand have developed Islamic products and recently OCBC received an Islamic banking licence in Brunei. Indonesia has established an Islamic banking law in 1992, but the lack of comprehensive and appropriate framework and instruments for regulation and supervision has impeded the development of Islamic banking to its full potential.
Dr Venardos argued that Singapore is well-positioned to lead the market in Islamic banking. This argument is based on the four pillars of our society: the credibility of our financial system, the English common law system, our political stability and finally, our regulatory regime. Malaysiahas also indicated that Singapore’s entry into Islamic banking is a positive development.
During the Q & A, questions were raised about the need for a global Islamic banking system, the role of governments and the possibility that Islamic banks might end up becoming commercial banks.
Dr Venardos noted that while the size of this market is growing, there is a lack of codification in this area and a real need to establish a common Shariah supervisory board to standardise procedures in Islamic banking. Any threats of the system becoming “corrupted” and transforming to a regular commercial bank will most likely come from within(Muslim community) and not externally. Interestingly, the author mentioned that he does not see politics playing a role in Islamic banking.
An audience member remarked that the Shariah is open to interpretation and therefore any scholar who can read the Quran can choose to interpret it differently. Another member pointed out that the Quran is not a statute. Instead it expounds on human principles and Muslims seek to derive inspiration and not determination from it. On the question of infrastructure financing, the Muslim population is too small in Singaporefor Islamic banking to develop in this area.
Hank asked about the Singapore government’s role and steps that MAS can take to develop this market. Dr Venardos said that safeguards are already in place for those who are interested in entering the market. MAS has also made some changes to tax and stamp duty to facilitate easier access. Currently, there is a need to equip people with skills and training in Islamic banking. One area that the government could consider is to encourage development of such courses and possibly seek cooperation with universities in Malaysiaand Brunei.
Hank made some observations. With the acceleration of globalisation, risk levels are increasing and there is a need for a larger pool of financial resources. However Arab countries tend to deposit money in Europe and other developed economies rather than in their own banks. Moreover there is a structural fundamental issue at stake: Islamic countries are not industrialised. Dr Venardos noted that while the parameters of Islamic countries are restricted, the opening of an Islamic bank in the UK reflects the growing nature of the market. Structural constraints do not seem to affect growth as well. In the late 1990s, Islamic Funds performed better than Ethical Funds.
In conclusion, the author is optimistic about the development of Islamic banking in Malaysia, Bruneiand Singapore. Currently the absence of a global system of codification will affect transparency and accountability. It is thus up to the Muslims themselves to ensure that a proper set of rules and guidelines are in place to prevent any “corruption” of the system itself.