SINGAPORE's nascent Islamic finance industry is finding it tough going amid volatile financial markets and depressed oil revenues.
So far this year, there has been only one sukuk, or Islamic bond, deal in a fairly brisk fixed-income market which saw 136 bond deals worth S$17.7 billion sold in the first nine months of 2015 - Malaysia's mortgage lender Cagamas Bhd sold a S$163 million sukuk in September. The lack of a natural pool of Islamic funds in secular Singapore is a major barrier to sukuk launches, according to Clifford Lee, DBS Bank head of fixed income.
"And so you try to sell in other markets which need education (leading to) higher costs; if you're a strong issuer, the conventional bond market is more than ready to meet your needs," explained Mr Lee.
Islamic finance bans interest, products with excessive uncertainty, gambling, short sales and the financing of prohibited activities considered harmful to society. The strongest indicator that it's not smooth sailing for Islamic finance players here came in September when DBS Group Holdings said it will be winding down its Islamic banking unit, which it said has been unable to achieve the necessary economies of scale.
DBS Group Holdings is winding down its Islamic banking unit, The Islamic Bank of Asia (IB Asia), which it said has been unable to achieve economies of scale. The process of winding down the unit will likely take two to three years. IB Asia, which had been named "Best Islamic Bank in Singapore" by Islamic Finance News in January this year, offers wealth management services to high net worth customers. It also provides treasury, corporate advisory and capital market services to businesses. The move to wind down IB Asia is subject to obtaining approval from its shareholders and receiving regulatory approvals, DBS said.