10/17/2004 4:00:00 PM GMT
Muslim Malaysia has set the ground to become a key Islamic financial center in the region, with eight Islamic banks including three Middle East players, analysts said.
Last week, the central bank finalized a plan to fast-track the liberalization of the Islamic banking sector this year, three years before the World Trade Organization deadline in 2007.
It granted two foreign Islamic banking licenses to Saudi Arabia's largest bank Al Rajhi Banking and Investment and a consortium led by the Qatar Islamic Bank after granting the first one to Kuwait Finance House in May.
Three local banking groups -- Hong Leong Bank, Commerce-Asset Holding Bhd. and RHB Capital -- were also given approvals recently to open Islamic banking services, joining existing players Bank Muamalat and BIMB Holdings Bhd.
Analysts said the introduction of foreign players would make local banks create and compete more aggressively in developing Islamic products and services.
While neighboring Singapore and Hong Kong are now seen as the financial centers in Asia, Malaysia is setting the stage to become one as it is carving a niche to tap billions of dollars of Muslim funds seeking new investment homes after the 2001 attacks in the United States and uncertainties in the Middle East.
"The intention of bringing in foreign players was not for them to compete in the local market but to use Malaysia as a springboard to do regional and global businesses, which will eventually raise Malaysia's profile as a global hub for Islamic finance and banking," said TA Securities research chief Ngu Chie Kieng.
Islamic banking- first introduced in Malaysia in 1983- combines Islamic laws against interest payments with modern banking principles. The Malaysian government has said that it would gradually grant Islamic banking licenses to all banks in an effort to make the segment grow and encourage the expansion of such services offshore.
Economists said that there has been a boom in Islamic banking after the September 11 attacks in the United States as investors pulled funds out of the West. They added that the Islamic finance market worldwide is estimated to be worth 200 billion dollars and is growing at 15 percent a year.