continued... - Islamic Finance News

Islamic Finance news Guide 2008
Page 98
Developments in the Islamic Banking and Capital Market
in Brunei Darussalam (continued...)
the domestic economic and fi nancial system and be
appropriately channeled towards investment and funding
in the country.
The Brunei Ministry of Finance offi cially launched the shortterm
Brunei dollar Islamic bond Sukuk Al-Ijarah in November
2006 where 91-day commercial papers worth BN$150
million (US$92 million) were sold in what would be the fi rst
of a series of planned sales from the Brunei government. The
ministry issued 10 tranches of these Brunei dollar short-term
Sukuk in July 2007 amounting to BN$1 billion, followed by
the issuance of a one-year Sukuk in July 2007 amounting to
BN$45 million.
The Brunei government, which has no external debt, has said
it has no fundamental need for the funds as the reason for the
issuance is to develop the ICM to build Brunei as an Islamic
market. Brunei planned to sell Islamic commercial papers
in order to develop other areas of the economy, reduce the
outfl ow of funds and encourage other local entities to sell
Islamic debt.
Islamic bond issuance has to be structured according to
Shariah law that governs the Muslim faith and, among other
things, cannot pay interest and must be backed by tangible or
income-generating assets.
The policy directive of the Ministry of Finance on personal
loan capping was aimed at containing excessive personal
loans and fi nancing to fi nance consumption, while conversely
attempting to promote a savings and investment culture. In
this regard, the 10-year strategic plan of the ministry clearly
spells out that it is one of the conscious and continuous efforts
through a set of integrated policies, strategies and designs to
promote and facilitate the development of a dynamic deep
and sustainable fi nancial industry in Brunei Darussalam.
Consequently, fi nancial institutions need to be dynamic in
reasonably meeting the increasing expectations of the depositors
and investors in terms of product returns and diversifi cation
in order to provide an attractive and sensible alternative
in order to fulfi ll the requirements for Muslim investors.
The formation of a national Shariah fi nancial supervisory
board will help instill public confi dence in issues in relation to
Shariah compliant products marketed in or from this country,
he believes that Brunei Darussalam’s credentials with regard
to Islamic matters puts the country in good stead in terms of
the requisite Shariah governance and thereby facilitate the
development opportunities of many more Shariah compliant
products under our jurisdiction.
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The fi rst Islamic bank in the sultanate, the Islamic Bank of
Brunei (IBB), was established on the 13 th January 1993. It
was set up to meet the objectives that are to fulfi ll the needs of
fardhu kifayah for the country, to broaden and accelerate the
economic growth of Brunei by going in to the banking industry
and to provide an alternative Islamic banking approach to
the community. The merger of IBB and Islamic Development
Bank of Brunei Ltd on the 1 st February 2006 marked another
milestone in the development of Islamic banking in Brunei
Darussalam.
“Brunei planned to sell Islamic
commercial papers in order
to develop other areas of the
economy, reduce the outfl ow of
funds and encourage other local
entities to sell Islamic debt”
The bank, now known as the Islamic Bank of Brunei
Darussalam, was established to strengthen the Islamic
fi nancial institution of Brunei, in particular the banking
sector and insurance, and make it more sustainable and
competitive.
IBB, the leading Islamic bank in Brunei, based on its
unaudited fi nancial performance for 2007, registered a profi t
of BN$126 million for 2007, which is equivalent to 70%
increase in profi ts compared to 2006. This further proves
that there was robust growth of the ICM in the fi nancial
segment during the last fi ve years with the total assets
estimated to exceed US$1 trillion and an average annual
growth between 15% and 20%.
In January 2008, IBB took another step towards the Ministry
of Finance’s aspiration of developing Brunei into a reputable
Islamic fi nancial hub by launching a new addition of its existing
divisions. The assets and fund management division in July
2006 to source consistent return on Islamic investments via
the fund management and investment banking businesses.
There is a need to enhance and diversify returns from banking
business such as investment banking.
The division has had signifi cant achievements such as
the issuance of US$100 million Sukuk Al-Ijarah for Brunei
Liquefi ed Natural Gas, active participation in the subscription
in the subscription for Ministry of Finance’s series of shortcontinued...