Singapore’s objective of becoming a Shariah finance center has been dealt a serious setback by DBS Group Holdings Ltd.’s decision to close its Shariah banking division that had sought to promote Shariah finance throughout Asia.
The Islamic Bank of Asia will be gradually wound down as it was “unable to achieve economies of scale,” DBS said in a Sept. 14 statement to the stock exchange. Southeast Asia’s largest lender and Middle Eastern investors set up the bank in 2007 with $500 million of paid-up capital and a focus on investment, advisory and capital-market services, plus wealth management.
Singapore, Asia’s biggest currency-trading center, introduced tax rules to allow Islamic bond sales in 2006. The city-state, where 14 percent of the population is Muslim, had S$240 million ($171 million) of offerings last year in an international market that saw $48.5 billion of issuance and this year only Malaysia’s Cagamas Bhd sold sukuk. Its experience casts doubt on the potential for cities without sizable Islamic populations, such as Hong Kong and London, to become Shariah-finance hubs.