Singapore is giving it another try to embrace Islamic finance growth

The Southeast Asian financial hub of Singapore, where Islamic finance so far had a comparatively weak standing, is now seeking to play its cards with the launch of a new Shariah-compliant index designed as a benchmark for Shariah-compliant stock investments in the country. Launched by FTSE Russell, a UK-based provider of stock market indices and associated data services, the FTSE ST Singapore Shariah Index tracks companies listed on the Singapore Exchange and selects them in accordance to their Shariah-compliance as demand for Islamic investment products continues to see stable growth in the region.According to its creator, the new index is screening the companies against a clear set of Shariah principles to create a reliable and authoritative Shariah-compliant index for the Singapore market. At launch earlier in October, there were 48 companies in the FTSE FT Singapore Shariah Index which fulfilled the criteria. They are being scrutinised for their business activities and whether they include conventional finance, alcohol, tobacco, pork and pork-related products and non-halal food production, including packaging and processing, certain haram activities such as casinos, gambling and adult entertainment, as well as weapons, arms and defence manufacturing.As for the companies’ financials, certain ratios must be met to be considered Shariah-compliant, namely debt less than 33.33% of total assets, cash and interest-bearing items less than 33.33% of total assets and accounts receivable less than 50% of total assets, while total interest and non-compliant activities income shall not exceed 5% of total revenue.“We welcome the FTSE ST Singapore Shariah Index to the Singapore stock exchange,” said Ng Kin Yee, head of market data and connectivity of the city state’s bourse. “The outlook for the global Islamic fund and wealth management sector continues to be positive, supported by an increasing range of Islamic financial instruments available to investors. This index will serve as a benchmark for Shariah-compliant funds looking to invest in Singapore, and potentially pave the way for the creation of other Shariah-compliant products,” he added.The top ten companies in the new Shariah index are currently Singtel, Hongkong Land, Keppel, ComfortDelGro, Singapore Airlines, Singapore Press Holdings, Venture Corp, Mapletree Industrial Trust, Netlink NBN Trust and Hutchison Port Holdings Trust. Independent screening is carried out by Yasaar Research, a London-and Dubai-based Islamic finance consultancy with expert Shariah scholars.Singapore in the past has made various attempts to establish a stronger Islamic finance industry, but apart from a few Islamic windows of conventional banks and some sukuk issuances the business did not really take off, which seems to have had to do with a lack of demand from investors and retail clients and the image of Islamic banking as a niche industry in the past. However, in terms of regulations, Singapore is prepared for growth in the Shariah-compliant finance industry, and geographically, it has the advantage of sitting right between populous Muslim countries Malaysia and Indonesia of which particularly the latter has immense potential for Islamic finance. Singapore’s strength as an international financial centre also lies within its prudential regulations, consistent regulatory regime and an efficient government, coupled with an excellent business infrastructure, economic freedom and a wide talent pool. The importance of Islamic finance for the city state has been recognised by regulators and financial institutions as early as in 2005, when the Money Authority of Singapore began to adjust its regulatory framework for Shariah-compliant finance and banking and later introduced tax-related regulatory amendments to ensure a level playing field between conventional and Islamic finance. However, there are still domains of Islamic finance such as Islamic fund and wealth management, as well as takaful which remain relatively underdeveloped given Singapore’s significance in the global financial industry and could also be focused on in the future.