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The Islamic finance industry has gained considerable interest as a viable and efficient alternative model of financial intermediation.
Closer to home, Malaysia’s achievement in Islamic finance is remarkable. Its success story is a result of the concerted efforts by the Malaysian government, the regulators and the industry players. While Bank Negara Malaysia, Securities Commission Malaysia and Bursa Malaysia are actively pursuing the Islamic finance initiative aggressively in Kuala Lumpur, LOFSA also plays a similar role to complement this initiative under the Labuan International Business and Financial Centre (Labuan IBFC).
Development of Islamic financial services
Labuan offers a comprehensive range of Islamic and conventional financial products and services. It is also strategically located between the growing economies of China and India.
With regard to the tax framework, Labuan IBFC offers a low corporate tax rate of 3% of net profit, or RM20,000 (US$5,876 , as opted every year), as well as tax rebate on business zakat. However, with effect from year of assessment 2008, Labuan offshore companies can elect to be taxed under the Malaysian Income Tax Act 1967. There are no capital gains tax, stamp duties, death or inheritance tax and withholding tax on various types of payments. There is also no exchange or capital control in Labuan IBFC.
Successful listing of securities
As at June 2008, there were 32 instruments listed on LFX, of which eight are Shariah compliant. The most recent issuances were the US dollar-denominated non-callable five-year Islamic subordinated Sukuk worth US$300 million issued in late 2007 and, more recently, in March 2008, the listing of a US$550 million Sukuk by Paka Capital.
Labuan IBFC has also been an attractive destination for Islamic funds with many fund portfolios established to channel regional investment flows. Currently, Labuan IBFC has 16 Islamic private funds. In 2008 alone, out of six new private funds approved, four were Islamic private funds amounting to US$1.04 billion.
The more encouraging development was the establishment of the RM1 billion (US$294 million) Safeena Islamic Marine Fund, the first Shariah compliant shipping fund in Labuan IBFC that was also the first in Malaysia and Southeast Asia.
Outlook
For the future, LOFSA has taken several initiatives designed to create a conducive business environment for both conventional and Islamic financial services to operate in.
Firstly, Labuan had in January 2008 undertaken a whole new strategic direction to reposition itself as one of Asia’s most connected, convenient and cost-efficient international business and financial centers, with the clearer and more distinct name of Labuan IBFC.
Secondly, LOFSA plays a significant and complementary role with regard to the initiatives under the Malaysia International Islamic Financial Centre (MIFC) that include measures to provide Labuan offshore Islamic banks as well as offshore Takaful operators greater flexibility to operate from anywhere in Malaysia, while leveraging on the incentives offered through Labuan IBFC.
Thirdly, with its new brand name, Labuan IBFC has carved for itself a larger role to support the economic growth of the region. While continuing to offer a comprehensive range of financial products and services, efforts have been taken to further develop niche products and services such as holding company structures, private funds, captive insurance, leasing, and Islamic trust and foundations. Steps are being taken to introduce captives that are Shariah compliant.
With regard to leasing, one Shariah compliant aircraft leasing structure by way of Ijarah to facilitate the lease of eight aircraft worth US$268.8 million has already been approved.
Fourthly, in line with the vision to promote Labuan IBFC in various target markets, LOFSA had also initiated the establishment of Labuan IBFC Incorporated, which is responsible for promoting Labuan as an international business and financial center. The main function is to drive market development and to act as facilitator to investors seeking to participate in Labuan IBFC.
Fifthly, LOFSA implemented reduction of annual fees for the incorporation of offshore companies from RM2,600 (US$763) to RM1,500 (US$440) with effect from the 1st July 2008. This is to ensure that Labuan IBFC is cost-efficient compared with other offshore centers.
Omnibus Act
Another initiative is legislative review. A new Omnibus Act will also be introduced, which would include the Labuan Islamic Financial Services Act (LIFSA).
LIFSA will comprise a set of legislations to govern the Islamic financial services business and will include provisions on Shariah governance, licensing requirements for Islamic banking, Takaful and reTakaful activities as well as for Islamic trusts and foundations.
It would also seek to address Islamic principles and concepts that are not expressly addressed in the current legislations, such as on hibah (gift), sadaqah (charity), wasiyah (bequest) and waqf (religious endowment), which are applicable to Shariah compliant trusts.
Labuan IBFC is well poised to seize the opportunities in the offshore Islamic financial services sector by offering a wide range of Islamic products and services to enhance integration and international connectivity with the global markets.
Dato’ Azizan Abdul Rahman has been director-general of LOFSA since the 1st July 2005 |
