Why has Islamic finance stalled in Singapore?

News and opinion on finance

Sultan Mosque in Singapore

It is 14 years since Singapore’s then senior minister Goh Chok Tong announced the government’s intention to make the island state a hub for Islamic finance.

The years since have seen a revamp of the regulatory framework, tax equalization laws and membership of global Islamic finance bodies, but industry figures still talk about Singapore in terms of potential rather than progress.

Adnan Chilwan,

“Singapore has not really capitalized as it should have done given the strength of its financial system,” says Adnan Chilwan, group chief executive officer of Dubai Islamic Bank (DIB), speaking at the IFN Forum Singapore, at a panel moderated by Euromoney on Thursday.

“When we were looking at expanding our operations in Far East Asia, we were contemplating between Malaysia and Indonesia, and to be honest Singapore was not on the list,” he says.

“It’s not because it does not have a stable financial system: it has a lot of ability, including the required infrastructure and regulation, but it does not have the intention of really tapping Islamic wealth and liquidity.”

He adds: “We need to wake everyone up and tell them: if you really focus on Islamic finance, you will very quickly take the lead, and not allow players from behind to come and overtake you.”


Why hasn’t Singapore made the best of its potential?

For a time, it seemed it was doing so. There have been many Islamic landmarks in the capital markets, including the Sabana Reit, the world’s first and largest Shariah-compliant real-estate investment trust; sukuk funds from managers including Franklin, HSBC and Maybank; more than 30 sukuk; and commodity murabahah from Olam.

However, most of these landmarks are from a decade ago, and there is a sense that things have stalled. There has never been, for example, a sovereign sukuk from Singapore or a state vehicle, unlike, for example, Hong Kong.

Marie Diron,

“Other sovereigns around the world have established their presence in that market, even those with relatively limited size or local demand, like Hong Kong,” says Marie Diron, managing director in the sovereign risk group at Moody’s Investors Service.

Singapore has hosted sukuk for other countries’ state vehicles, notably Malaysia’s Khazanah, but not its own.

Singapore also doesn’t have a fully fledged Islamic bank – though it used to.

Islamic Bank of Asia was launched by partners including Singapore’s DBS in 2007, but lasted only eight years before DBS announced it could not achieve economies of scale for the bank and would close it down within two to three years.

DBS instead offers Islamic-compliant banking products directly. Arguably, this doesn’t matter.

“In order to become an Islamic financial hub you don’t necessarily need to have an Islamic bank operating,” says DIB’s Adnan. “It’s good to have, it becomes a reference point that it’s an Islamic hub, but what’s more important is to have a unique proposition.”

To Bello Lawal Danbatta, secretary-general of the Islamic Financial Services Board (IFSB), this is the point: Singapore’s potential is not about domestic assets or population, but its other advantages.

“The hub I am seeing is from an instrument perspective, an asset perspective,” he says. “It is strategically located in the region surrounded by predominantly all-Muslim countries,” Malaysia and Indonesia.

“Singapore doesn’t have to be the greatest issuer. It is a highly rated economy, which provides investors comfort and stability. It is about quality of services.”


Bello believes Singapore can be a regional leader for fintech in Islamic finance, for Islamic asset management and for responsible investment.

Geoff Howie, market strategist at Singapore Exchange (SGX), points to the FTSE ST Singapore Shariah index, launched by SGX, FTSE Russell and SPH last year, containing Shariah-screened stocks.

It has, he points out, outperformed other benchmarks in the region this year, with lower volatility, though he concedes “we still haven’t seen any index products launched yet. The good value is that the screening process is done.”

Ashraf Gomma

Ashraf Gomma Ali, regional head of Shariah advisory and governance at CIMB Islamic Bank, says Singapore has an opportunity from increased interest in environmental, social and governance (ESG) investment.

“The majority of institutional funds under management have some type of social responsibility screening, and that aligns closely with Islamic values,” he says. “There definitely will be a convergence, and all Islamic finance will be ESG.”

He also thinks Singapore can be a regional leader in the halal space.

“If the gold standard for halal becomes to have Islamic financing, then that’s an opportunity for Singapore as a trade finance hub,” he says.

Sutan Emir Hidayat, director of Islamic financial education and research at Komite Nasional Keuangan Syariah (the National Committee of Islamic Finance), agrees that halal represents an opportunity, and also thinks Singapore is missing a trick in its educational establishments.

“You have top, world-class universities here, but you don’t take the opportunity to offer Islamic economics and finance programmes,” he says, in contrast to places such as the UK, which, despite not being Muslim-majority countries, do offer such programmes.

“We’d be happy if NUS [National University of Singapore] was offering these courses.”

The IFSB’s Bello argues that the government has done plenty to create the right infrastructure, and that now “the focus should be more on the private sector to come up with new ideas to support Islamic finance”.

He thinks micro-sukuk, with subscription levels as low as $50, are an example where Singapore could play a role, and he also believes the country could help to create secondary market liquidity for socially responsible investments.

“The paradigm shift we are expecting from Singapore is to be a support provider,” says Bello. “The regulatory framework is already there.”

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