Brunei - now a big fish!

The Oxford Business Group reported the following on 26th October 2009:

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Brunei Darussalam: Diving In at the Deep End

26 October 2009

Brunei Darussalam is steadily building on its reputation as an Islamic financial services hub, making up for lost time and developing a credible sharia-compliant banking and financial sector.

Though the Sultanate has long offered Islamic financial services, operating in tandem with conventional banks and institutions, the lack of a broad-based regulatory environment meant that until recently the sector struggled to gain the recognition it deserved.

However, over the past few years there has been a rapid shift, thanks in part to reforms that established rigid guidelines to ensure banks offering Islamic products were fully compliant with sharia financial law requirements. As a result of these and other measures, Islamic banking sector has been equipped with a regulatory platform equal to or in advance of most of others operating in the industry.

These developments have in turn generated greater interest in Islamic financial services in Brunei Darussalam itself and have fuelled the drive to expand the sector's horizon far beyond the Sultanate's own borders.

One of the leaders in this push is Bank Islam Brunei Darussalam (BIBD), which is fast making a name for itself in the international arena as a successful financier, while at the same time bolstering Brunei Darussalam's own banking and finance credentials.

In July, BIBD was named along with BNP Paribas, CIMB, Deutsche Bank and HSBC as one of the co-managers of the Islamic Development Bank's (IDB) latest sukuk issue, which was held in September.

Such was the success of the issue, which was more than twice oversubscribed and raised $850m, well above the minimum target of $500m set by IDB, that BIBD managing director Javed Ahmad said it was likely similar projects would be coming the bank's way in the near future.

By surpassing the Islamic bond sale target Brunei Darussalam had been put on the international map in terms of Islamic finance, Javed said in late September. BIBD's participation in the issue had opened up new opportunities for other local Islamic finance institutions, which could further boost Brunei Darussalam's bid to become an Islamic finance hub, he told the Brunei Times.

"This is a positive achievement for Brunei Darussalam's image and has allowed us to be involved with customers outside the country," Javed said.

Another to broaden the base of the financial services sector is the Brunei Investment Agency (BIA), which has been stepping up efforts to internationalise its operations. In early October, the Sultanate's sovereign investment arm announced it had become a shareholder in a newly launched Islamic financial services firm, Fajr Capital. Other stakeholders in the Dubai-headquartered firm, which has an initial capital of $600m, include Malaysian sovereign investment fund Khazanah Nasional Berhad, the Abu Dhabi Investment Council, and the private Saudi-based firm MASIC.

Fajr's shareholders have said the company will focus on financial services and complementary opportunities in the broader economy in key Muslim markets including Brunei Darussalam.

According to Dr Amin Liew Abdullah, the managing director of BIA and one of the members of the new company's board, the investment in Fajr is part of BIA's strategy to increase its exposure in the Islamic financial industry.

"Fajr Capital is well placed to help develop Islamic financial markets and we look forward to a mutually beneficial partnership in the years ahead," Dr Amin told local media on October 6.

This increasing international profile is also generating overseas interest in Brunei Darussalam as a financial services market. On October 12, Datuk Mohamed Azahari Kamil, the chief executive officer of Malaysian-based Asian Finance Bank, said his institution was considering establishing a representative office in Brunei Darussalam as a result of the rapid expansion of the market there.

The bank was also looking at possible collaboration with Brunei Darussalam government agencies to establish an Islamic fund in the first half of next year, which will be jointly distributed and managed by Malaysia and Brunei Darussalam, Mohamed Azahari said while attending a financial road show in Doha.

While Brunei Darussalam has made great strides in recent years in developing its Islamic financial services sector, it still has work to do, especially given the increasing competition it will face in the future, both from regional rivals, other Muslim countries and even the conventional banking and finance industry, which is becoming more attracted to the potentials offered by sharia-compliant products.

According to Pehin Orang Kaya Seri Dewa Major General (Rtd) Dato Seri Pahlawan Awg Hj Mohammad Hj Daud, the Sultanate's minister of energy and the acting chairman of BIBD, the growth of the Islamic financial services sector in Brunei Darussalam and beyond has been supported by a rigorous and well-developed legal, regulatory and sharia framework, thereby ensuring its stability and sustainability.

However, crucial to the development of Brunei Darussalam as an Islamic financial services hub will be ensuring that there is a sufficient pool of talent and expertise, he told a seminar on creating awareness of Islamic finance, held on September 27.

Currently, that pool may be small, but by diving into international waters, Brunei Darussalam's Islamic financial services sector is learning to swim with the big fish.

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