Malaysia woos foreign players in Islamic banking http://www.reuters.com/article/bankingfinancial-SP/idUSKLR10518620070327
Tue Mar 27, 2007
(Adds details)
By Liau Y-Sing and Hsu Chuang Khoo
KUALA LUMPUR, March 27 (Reuters) - Malaysia sought on Tuesday to boost its profile as a regional Islamic financial hub by allowing foreign businesses to set up wholly-owned foreign currency operations in the country.
Malaysia has long nurtured an ambition to become a centre for Islamic finance, but experts have said it is unlikely to realise that goal without full liberalisation of its ringgit currency.
Malaysia has freed up its Islamic banking, insurance, reinsurance and capital markets to allow the entry and licensing of new players, Prime Minister Abdullah Ahmad Badawi told an Islamic finance conference. "Both foreign and local players can apply for a licence to conduct business in international currencies, which may also be supported by tax holidays," he said.
"To develop the sector's potential even further, the government has now taken the decision to relax Foreign Investment Committee rules to allow 100 percent foreign equity ownership in Islamic financial institutions established under this arrangement."
Central bank governor Zeti Akhtar Aziz said the measure applied only to foreign currency business.
"They don't have a presence in our system and this is a way for them to enter into our system," she told reporters, adding, "They don't have to have any domestic partner. In this particular case, they can own 100 percent of the business."
The government also waived withholding tax on non-residents' investments in non-ringgit Islamic securities.
"Approval has been granted to fully exempt from withholding tax any profits or income on non-residents' investments in non-ringgit Islamic securities, including sukuks, issued in Malaysia," Abdullah added.
Mainly Muslim Malaysia, along with Dubai, Bahrain and Singapore, wants to emerge as a global Islamic financial hub to tap the fast-growing industry, which has $300 billion of assets.
To encourage the sale of foreign currency bonds and sukuk in Malaysia, the central bank issued guidelines on Tuesday which allow issuers to use proceeds from the issuance onshore and offshore. Issuers can also hedge to the full amount of the underlying commitment.
Non-resident investors can invest in foreign currency-denominated bonds and sukuk onshore and there are no curbs on the repatriation of capital, profits and income earned from Malaysia, the central bank said.
Separately, Malaysian and Dubai authorities signed a pact on Tuesday to allow approved Islamic funds to be sold in respective jurisdictions.
"This agreement marks the first time that Malaysia will allow foreign funds to directly market and distribute their products here," Securities Commission said in a statement.
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