FOUNDATION OF ISLAMIC FINANCE
SEMESTER 2 2013/2014
DEVELOPMENT OF ISLAMIC BANKING AND FINANCE
Singapore or officially known as the Republic of Singapore is an island city-state which situated in the Southeast Asia specifically lies off the southern tip of Malaysia peninsular. The total area of Singapore is 716.1 square kilometres or 270 square miles and it accommodates approximately 5,599,200 citizens and 823,082 of them are consists of Muslims. Muslims in Singapore are about 14% out of the population numbers and are amongst the minority society. In the context of economy, Singapore is a trade-oriented market economy that basically practices conventional banking system. However, the Islamic banking system has slowly entering the Singapore banking system since the year 2005. The Islamic banking system was not rapidly executed nor accepted because the conventional banking sector has developed well over the period of time. The Monetary Authority of Singapore (MAS) is the responsible entity in helping the progress of Islamic finance in the country. The table provided below is to show some of the comparison between conventional banking system and Islamic banking system in Singapore. CONVENTIONAL BANKING SYSTEM
ISLAMIC BANKING SYSTEM
Additional buyer’s stamp duty needs to be paid off by certain groups of people that want to obtain real estates. Additional buyer’s stamp duty for certain Islamic transactions involving real estates is removed. Using the usual structures used for tax treatment in conventional banking system. Using Murabaha, Mudaraba, and Ijara wa Igtina structures on the tax treatment for Islamic financing since 2006. Contribute 75% for annual growth rate of Singapore.
Contribute 15% for annual growth rate of Singapore since established and still growing at a fast rate.
Singapore is a highly developed trade-oriented market economy. Singapore's economy has been ranked as the most open in the world, least corrupt, most pro-business, with low tax rates (14.2% of Gross Domestic Product, GDP) and has the third highest GDP in the world; in terms of Purchasing Power Parity (PPP), of $318.9 billion in 2011.
Singapore initiated its Islamic finance journey at the start of the millennium with the watershed decision to give preferential tax treatment for Islamic finance. The Singapore government, in tabling its 2002 budget, announced fiscal incentives under the Financial Sector Incentive (FSI) scheme after realizing the great potential of Islamic finance, especially as a reliable alternative assets class. These fiscal incentives have prompt the establishment of several Islamic window operations in the republic, including Standard Charted Bank, HSBC, OCBC, CIMB and Maybank. In 2005, the Monetary Authority of Singapore (MAS) refined its regulations to facilitate the growth of Islamic finance. It also removed the additional stamp duties for certain Islamic transactions involving real estate. To contribute to the development of Islamic finance, MAS joined the Islamic Financial Services Board (IFSB) and has participated actively in its various working groups and task forces in areas like supervisory review, Islamic money markets, capital adequacy, liquidity management and solvency requirements for takaful operations.
In 2006, clarifications were made on the tax treatment for Islamic financing using Murabahah and Ijarah with Istisna structures. Singapore-based banks began to offer Murabahah investments and Murabahah financing. In 2007, retail Murabahah investors were accorded the same regulatory protection as conventional depositors. In 2008, a concessionary tax rate was introduced for qualifying Shariah-compliant lending, fund management, takaful and retakaful activities.
Eventhough Singapore is having small domestic market and competition compare to other country, it can still position itself in a niche market in the...
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