Brunei Islamic banking, takaful set on par with global standards

National 4 minutes, 14 seconds


BRUNEI'S rules on Islamic banking and takaful are now on par with international standards after the government issued two orders to govern the sector. Banking and takaful insurance players welcomed the rules, but they also voiced concerns about some of the provisions.

"We haven't got any Islamic takaful and banking orders yet, so this is the first one which we have introduced to international standards; so now businesses can come in on international standards," said Permanent Secretary of the Ministry of Finance Dato Paduka Hj Ali Apong, during a briefing for industry players yesterday on the Islamic banking and takaful orders.

Badaruddin Hj Kudil, Takaful IBB Islamic Insurance's head of general takaful, voiced concern over a requirement to split up the registration for general and family takaful businesses. "Currently, we are a composite company where one company operates both life and general insurance, but from the way we read it, now we have to split it up," he said.

"Our early perceptions regarding the registration is to require two capitals for both general and family takaful. As far as the requirement of the capital is concerned, we have no issue, but is (the rule requiring registration) .... for two separate companies for life and general really necessary? Because that will reduce good capital return to the operators, as far as practicality is concerned," he said.

Because of this rule, Badaruddin said the total premium might not be enough to give a good return for multiple companies.

"The other thing is resources human resources for example two separate companies will only create and increase the operating cost," he said.

Shazali Sulaiman, a partner at the KPMG auditing firm, raised concern whether Brunei has experts in Islamic finance and takaful.

"Where syariah is concerned, we have Islamic scholars who are scholars on Islamic issues, but they may not necessarily have a financial background, so I think the scholars should also include practitioners as well. With the shortage of people in the industry, most organisations will be using the same resources," he said.

On the differences between the conventional banking order and the Islamic banking order, Shazali said that the provisions are similar to the banking order, relating to the liquidity requirement, the capital deposit requirement, and the head office capital requirement, and so on. "The only thing lenient is that if you are a foreign bank, and you have a branch here, you only need to have $500 million in assets for your head office rather than $1 billion," he said.

He added that for everything else, the capital is still $30 million and that has been backed up by certain assets of the company. "It's not anything different from the conventional banking order, but it concentrates more on Islamic issues where syariah is concerned," he said. Still, the players welcomed the rules, saying their issuance is a good step towards developing Brunei as a financial hub.

"I think the Islamic banking order can set some direction to where the Islamic banking side is moving. What I can see is that the Islamic banking order is an opportunity to open the Islamic banking industry in Brunei for local companies who may be established companies, or for foreign companies with Islamic banking to come here," said Shazali.

"In the Islamic world, there's always a lot of differences in opinions and products, sukuk may be syariah-compliant in this part of the world, but certain sukuk may not be compliant in the Middle East because of terminologies and different products. I think the important thing is for Islamic banks to keep the principles of Islamic banking and to not try imitate commercial banking by going into derivatives, and not go into exotic products and try to Islamise them just to compete with commercial banks," added Shazali.

"Overall for the takaful order ... we ourselves are eager to have a local industry to be regulated and have been anticipating it for quite some time, and now with this new order, hopefully there will be a more level playing field that will be practiced by both Islamic and conventional insurance companies," said Badaruddin.

Under the rules, players are given six months to register. They also have until March 2009 to submit documents regarding the deposit and capital requirements.

The gazetted takaful order also mandated players to have surplus of assets over liabilities of not less than 20 per cent, a deposit of minimum $1 million for carrying on a general takaful business and a minimum of $1 million for a takaful operator carrying on a family takaful business.

It also stated that the registered takaful operator shall pay $20,000 for registration of a family takaful business and $20,000 for registration of a general takaful.

The gazetted Islamic banking order requires Brunei-incorporated Islamic banks to have no less than $100 million in issued and paid-up capital, while foreign Islamic banking players are required to have $500 million in issued and paid-up capital and $30 million worth of assets with respect to their Brunei operations. The Brunei Times