Thailand’s struggle with Islamic finance

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Islamic Finance Bangkok_Arno MaierbruggerIslamic finance has not taken off yet in Thailand despite the country’s only Islamic lender, state-owned Islamic Bank of Thailand, or iBank, is trying its best to raise more awareness for Shariah-based banking since the company’s inception in 2003.

In a – for Thailand – rare conference on the issue, experts discussed the challenges of interest-free banking and investing at the Islamic Finance News Roadshow 2013 on December 12 in Bangkok. However, with just around 20 people the event was not very well attended, showing even more that there is a lot of catching-up to do on the topic.

Thailand is not in the focus of Islamic investors as opposed to regional Shariah-banking powerhouses such as Malaysia and Indonesia despite the Muslim minority in the Kingdom is sizeable with around 10 million people, some 15 per cent of the population, most of them in the South.

“Unfortunately, the interest of the international Islamic finance market is not on Thailand,” said Aamir Shamim, Senior Vice President – Treasury and Investments at the Islamic Bank of Thailand.

The reasons for that are manifold. Firstly, the Thai government is not behind comprehensive regulations for Islamic finance, and the current regulations do not even allow the state-owned Islamic bank to invest abroad which is heavily limiting its scope. There are currently just three funds in Thailand that are Shariah-compliant and where it can invest.

“The Thai central bank needs a Shariah committee, the government needs to change the laws in favour of Islamic banking and licensing, and there needs to be support on financial literacy and improvement in taxation issues,” said Shamim.

“There so much liquidity here and the opportunities are immense, but not a single Islamic bank from the GCC, for example, has entered the market yet – why? We have been talking to the government but it seems that nobody wants to understand what we are saying.”

In fact, neither Arab banks or investors are currently interested in the Thai Islamic finance market, nor want Malaysian and other regional lenders to enter the market with their Islamic banking windows due to the lack or regulation of the sector.

Islamic Finance Bangkok1_Arno MaierbruggerWhile liquidity is there and Thailand’s economy remains one of the strongest in ASEAN, investors shy away from political uncertainty, as well as currency fluctuations and restrictions.

“Foreign investors don’t want to go into the baht,” said Ariff Sultan, Asia Director of IdealRatings, a financial service company specialised on Islamic finance. “There are not many foreign buyers for the three baht-denominated funds. It would be better Thai fund managers look into creating cross-border Islamic funds within ASEAN with a broader regional asset allocation. They have to think out of the box.”

Secondly, the domestic market for Islamic finance remains hard to penetrate despite the relatively high number of Muslims.

“The Muslim minority in Thailand is rather conservative,” said Shah Fahad, Vice President for Product Development at Islamic Bank of Thailand. “They tend to question us whether we pursue the ‘commercialisation of Islam’ by promoting Islamic banking.”

He added that a lack of financial literacy is another issue, especially in retail banking, and the income bracket of most Muslims in Thailand is “not substantial” enough for Islamic banking at a broader scale, which is why the Islamic Bank of Thailand in the South has mainly resorted to several microfinancing programmes.

To reach out to more people in Thailand, Islamic banking also needed “rebranding”, Fahad said.

“Let’s call it ethical banking or something, it should not have the Islamic label because many people still think this form of banking is just reserved for Muslims.”

Shariah-based leasing faces similar problems, said Zati Sankhavanija, President and CEO of Amanah Leasing Thailand.

“All the upcoming infrastructure funding and the booming logistics segment would be a huge market for Islamic leasing, or Ijara financing, as well as halal production financing,” he said. “However, the regulatory framework is missing here as well.”

Thailand’s capital market is around 15 trillion baht ($469 billion) strong, he said. Of this, just $3.75 billion account for Islamic finance, and just around $1 billion for Islamic leasing.

That said, the microfinance market so far remains one of the key markets for the Islamic Bank of Thailand in the retail segment.

“Microfinance is our retail strategy for the South,” said Fahad. “We are working with the communities there and are building our services on zakat for the poorest, as well as murahaba and low-rate or zero-profit financing for the relatively poor.” In southern cities, the bank also offers financing for small and medium enterprises depending on their business models, but larger companies are hard to reach out to.

“Muslim customers are very rare in corporate financing in Thailand, ” he explained.

All eyes are now on the upcoming ASEAN Economic community, which makes it technically easier for foreign Islamic lenders to come up with Shariah windows in Thailand.

“This will certainly bring more competition, but let’s see if the market is ready for it,” said Fahad.

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Reading Time: 3 minutes

Islamic finance has not taken off yet in Thailand despite the country’s only Islamic lender, state-owned Islamic Bank of Thailand, or iBank, is trying its best to raise more awareness for Shariah-based banking since the company’s inception in 2003.

Reading Time: 3 minutes

Islamic Finance Bangkok_Arno MaierbruggerIslamic finance has not taken off yet in Thailand despite the country’s only Islamic lender, state-owned Islamic Bank of Thailand, or iBank, is trying its best to raise more awareness for Shariah-based banking since the company’s inception in 2003.

In a – for Thailand – rare conference on the issue, experts discussed the challenges of interest-free banking and investing at the Islamic Finance News Roadshow 2013 on December 12 in Bangkok. However, with just around 20 people the event was not very well attended, showing even more that there is a lot of catching-up to do on the topic.

Thailand is not in the focus of Islamic investors as opposed to regional Shariah-banking powerhouses such as Malaysia and Indonesia despite the Muslim minority in the Kingdom is sizeable with around 10 million people, some 15 per cent of the population, most of them in the South.

“Unfortunately, the interest of the international Islamic finance market is not on Thailand,” said Aamir Shamim, Senior Vice President – Treasury and Investments at the Islamic Bank of Thailand.

The reasons for that are manifold. Firstly, the Thai government is not behind comprehensive regulations for Islamic finance, and the current regulations do not even allow the state-owned Islamic bank to invest abroad which is heavily limiting its scope. There are currently just three funds in Thailand that are Shariah-compliant and where it can invest.

“The Thai central bank needs a Shariah committee, the government needs to change the laws in favour of Islamic banking and licensing, and there needs to be support on financial literacy and improvement in taxation issues,” said Shamim.

“There so much liquidity here and the opportunities are immense, but not a single Islamic bank from the GCC, for example, has entered the market yet – why? We have been talking to the government but it seems that nobody wants to understand what we are saying.”

In fact, neither Arab banks or investors are currently interested in the Thai Islamic finance market, nor want Malaysian and other regional lenders to enter the market with their Islamic banking windows due to the lack or regulation of the sector.

Islamic Finance Bangkok1_Arno MaierbruggerWhile liquidity is there and Thailand’s economy remains one of the strongest in ASEAN, investors shy away from political uncertainty, as well as currency fluctuations and restrictions.

“Foreign investors don’t want to go into the baht,” said Ariff Sultan, Asia Director of IdealRatings, a financial service company specialised on Islamic finance. “There are not many foreign buyers for the three baht-denominated funds. It would be better Thai fund managers look into creating cross-border Islamic funds within ASEAN with a broader regional asset allocation. They have to think out of the box.”

Secondly, the domestic market for Islamic finance remains hard to penetrate despite the relatively high number of Muslims.

“The Muslim minority in Thailand is rather conservative,” said Shah Fahad, Vice President for Product Development at Islamic Bank of Thailand. “They tend to question us whether we pursue the ‘commercialisation of Islam’ by promoting Islamic banking.”

He added that a lack of financial literacy is another issue, especially in retail banking, and the income bracket of most Muslims in Thailand is “not substantial” enough for Islamic banking at a broader scale, which is why the Islamic Bank of Thailand in the South has mainly resorted to several microfinancing programmes.

To reach out to more people in Thailand, Islamic banking also needed “rebranding”, Fahad said.

“Let’s call it ethical banking or something, it should not have the Islamic label because many people still think this form of banking is just reserved for Muslims.”

Shariah-based leasing faces similar problems, said Zati Sankhavanija, President and CEO of Amanah Leasing Thailand.

“All the upcoming infrastructure funding and the booming logistics segment would be a huge market for Islamic leasing, or Ijara financing, as well as halal production financing,” he said. “However, the regulatory framework is missing here as well.”

Thailand’s capital market is around 15 trillion baht ($469 billion) strong, he said. Of this, just $3.75 billion account for Islamic finance, and just around $1 billion for Islamic leasing.

That said, the microfinance market so far remains one of the key markets for the Islamic Bank of Thailand in the retail segment.

“Microfinance is our retail strategy for the South,” said Fahad. “We are working with the communities there and are building our services on zakat for the poorest, as well as murahaba and low-rate or zero-profit financing for the relatively poor.” In southern cities, the bank also offers financing for small and medium enterprises depending on their business models, but larger companies are hard to reach out to.

“Muslim customers are very rare in corporate financing in Thailand, ” he explained.

All eyes are now on the upcoming ASEAN Economic community, which makes it technically easier for foreign Islamic lenders to come up with Shariah windows in Thailand.

“This will certainly bring more competition, but let’s see if the market is ready for it,” said Fahad.

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