The first Islamic financial institution in Brunei Darussalam, Perbadanan Tabung Amanah Islam Brunei — an Islamic trust fund — was established in 1991. Since then, Brunei’s Islamic finance sector has seen the merger of two Islamic banks into Bank Islam Brunei Darussalam (BIBD), the establishment of local Takaful operators and, more recently, an Islamic window to conduct Islamic investment business.Brunei’s Islamic finance sector hosts 10 fully-fledged Islamic financial institutions and one Islamic window.
Review of 2021
Islamic finance has been identified as one of the key areas of development under the Brunei Darussalam Financial Sector Blueprint (2016–2025), where Brunei envisions itself hosting an innovative and dynamic Islamic finance hub. The blueprint sets out the strategic framework adopted by the Brunei Darussalam Central Bank (BDCB) to guide the development of Brunei’s financial sector.
Brunei was ranked 11th out of 135 countries in the ICD–Refinitiv Islamic Finance Development Report 2020 where, among others, the country was recognized among the top four countries for the highest number of female representation on Shariah boards.
In recognizing the growing importance of environmental, social and governance (ESG) to generate positive societal impact, Brunei witnessed a local Islamic asset management firm, BIBD Securities, becoming a signatory to the United Nations Principles for Responsible Investment in 2021, the first financial institution from Brunei to commit as a signatory.
Islamic banking assets have dominated the total banking assets for the past four years, which stood at BN$11.4 billion (US$8.49 billion) as of the second quarter (Q2) of 2021. Brunei was ranked in the top four for the highest share of Islamic banking assets against total banking assets in the ICD–Refinitiv Report 2020.
The capital market is one of the areas with the most potential for Islamic finance development in Brunei. This was echoed in the ICD–Refinitiv Report 2020, where Brunei was recognized as the fastest-growing market in Sukuk assets globally.
In October 2020, the BDCB introduced the BDCB Islamic-Bills (BDCB I-Bills) Programme to help facilitate liquidity management for banks and diversify the money market instruments available. Since its maiden offering, 43 series of BDCB I-Bills have been issued, where the total holdings of the BDCB I-Bills outstanding stood at BN$79 million (US$58.7 million) as at Q3 2021.
The BDCB is also the agent of the government of Brunei in managing and administering the issuances of Sukuk Ijarah. As at Q3 2021, the government of Brunei has issued over BN$14.8 billion (US$11 billion)-worth of short-term Sukuk Ijarah securities. The total holdings of the Brunei Darussalam Government Sukuk outstanding stood at BN$280 million (US$207.9 million) as at Q3 2021.
In April 2021, Brunei saw the inauguration of a conventional capital market service license holder granted approval to conduct Islamic investment business through an Islamic window.
Takaful assets grew by 6.2% year-on-year, reaching BN$595.7 million (US$442.3 million) in 2020. Brunei was ranked as the country with the highest Takaful assets to GDP in 2019, where Takaful assets contributed to 1.12% of GDP.
In efforts to facilitate a fintech ecosystem for Brunei, the BDCB published a white paper titled ‘State of FinTech in Brunei Darussalam 2020’, which among others, proposes the establishment of Brunei’s first Islamic fintech hub.
The country observed increased diversification of Islamic finance products and services, including the introduction of an eZakat digital platform by the Brunei Darussalam Islamic Religious Council and industry players. The BDCB FinTech Regulatory Sandbox housed its first Shariah compliant fintech company in late 2020, testing Shariah-based a peer-to-peer crowdfunding platform for MSMEs.
Human capital development
In 2021, the Centre for Islamic Banking, Finance and Management was successfully rebranded to the Brunei Institute of Leadership & Islamic Finance (BILIF) to act as the Centre of Excellence for the finance industry in Brunei, offering learning and development programs, and international certifications such as those from AAOIFI.
With the support of the Ministry of Finance and Economy and the BDCB, the BILIF organized the Capacity Building Programme on Sukuk and ESG in September 2021. The program was a result of project funding awarded to Brunei by the Standing Committee for Economic and Commercial Cooperation, which assists OIC member countries and affiliated institutions in realizing strategic outcomes relating to economic and financial cooperation.
The BILIF, in collaboration with the BDCB, also organized the Brunei Darussalam Islamic Capital Market Conference 2021, which featured renowned Islamic finance experts and players across the globe discussing issues and challenges in the development of sustainable Islamic capital markets.
In recognition of the BILIF’s efforts and contributions toward human capital development and Islamic finance in 2021, it was awarded two international accolades: the GIFA Excellence Award for Islamic Finance Training and Education 2021, for providing learning solutions, events and services for human capacity development in the areas of Islamic finance and leadership, as well as the Award for Contribution to Organisation at the HRD Awards Asia 2021 for its role in effective employee development.
Preview of 2022
Future initiatives to develop Brunei’s Islamic financial sector include issuing a standardized Sukuk legal documentation template benchmarked against the International Islamic Financial Market, launching retail Sukuk to increase the participation of retail investors in the capital market, registration of Shariah advisors operating in Brunei and issuing a series of Shariah standards for Shariah compliant products to facilitate product innovation and harmonization.
Three decades on since the establishment of the first Islamic trust fund, Brunei’s Islamic finance sector has developed into an ecosystem containing various Islamic products and services, as well as different types of Islamic financial institutions. This has gained notable recognition from the international arena, in particular, in an improved position in the Islamic Finance Development Indicator published by ICD–Refinitiv and awards by GIFA Excellence and HRD Awards Asia. Brunei endeavors to continue developing its Islamic finance sector with hopes of being an international Islamic finance hub in line with the Maqasid Shariah.