BANDAR SERI BEGAWAN: There is an intense pressure on Brunei Darussalam to diversify its economic reliance on oil and gas, which makes up 90% of the country’s current export. Critically, the problem is not only the fast-depleting oil resources, estimated to last another two decades, but also the recent crumbling of crude oil prices of more than 60% within just a few months.
Nonetheless, the strong financial reserves accumulated over the decades will sustain the country during its transition period. The question then would be, what is the right industry for Brunei to diversify its economy from? Is it Islamic finance or another industry, namely shipping, oil and gas upstream or education? DR AIMI ZULHAZMI believes Islamic fi nance should be the answer.
Islamic finance is the right industry for Brunei due to the following reasons:
• Royal decree
The strong presence of the Sultan of Brunei in the administration enables Brunei to facilitate the laws and provides a strong backing to make rulings and fast implementation.
• Legal infrastructure
Various legal infrastructures are already in place from the establishment of Autoriti Monetari Brunei Darussalam (AMBD) in 2011 to the implementation of the new Securities Market Order in 2014, paving the way for the Brunei Stock Market.
• Rapid growth of Islamic banking
As of the middle of 2014, the Islamic banking market share stood at 47% and it is estimated that by the year 2020, the market share of Islamic banking will grow to at least 50% of the total fi nancial sector. • Fast track growth recorded by the Takaful industry Based on the AMBD monthly report, the four Takaful operators accounted for 33% of total insurance assets, up from 29% a year earlier. Takaful assets rose 21% to BND425 million (US$311.11 million), while conventional insurers saw a drop of 1.3% in assets.
• Off shore industry
The Brunei off shore industry has been growing rapidly within a decade of establishment and has turned into a successful tax-friendly jurisdiction that has att racted over 13,000 companies up to 2014.
A respected Islamic scholar, Sheikh Faizal Manjoo, during a conference in the Sultanate put things in perspective: “Brunei Darussalam possesses a conducive environment for a strong Islamic fi nance sector and has the potential to be an Islamic fi nance hub for the global market if it looks outwards.”
“When the law is in place and people understand the concept and banks fi nd it easy to implement it, then it becomes easy to sell the products, from issuing bonds to sovereign Sukuk, because in such a situation the state comes in and provides huge projects such as infrastructure fi nancing. The fact that you have this sort of legislation indicates a positive step,” he added.
With a relatively small population of 600,000, Brunei certainly is not att ractive enough to lure foreign players into the domestic retail industry, hence the Sultanate should look at off shore markets as a catalyst to att ract investment. Private banking licenses should also be issued in the off shore jurisdiction to encourage the growth of the Islamic wealth management industry. Trustee services, custody services and family offi ces are among the services that will spruce up with the establishment of the industry. Creating the right niche in Islamic wealth management will enable Brunei to tap the US$1.8 billion Islamic fi nance industry.
This strategy should be integrated with the anticipated introduction of the Brunei Capital Market in 2015. It will provide the right platform to strengthen Brunei’s indigenous market as it allows for Brunei entities and even foreign entities to tap the equity market. It will also benefi t medium to large-scale businesses as they would have an alternative avenue to access funds.
The Sultan of Brunei envisions his country to become a premier Islamic fi nancial center in the near future and in Islamic fi nance, Brunei has the right industry to thrive in.
Dr Aimi Zulhazmi is an Islamic finance consultant via his own Draznine Advisory.
SOURCE: ISLAMIC FINANCE NEWS. Dated: 11th February 2015