2020 proved to be a challenging year understandably given the COVID-19 crisis. Singapore had been hit especially hard economically given its small and open economy which has a high correlation with global growth. According to the Ministry of Trade and Industry, the country’s GDP is estimated to grow at -6.5% to -6% in 2020.
Nonetheless, the country’s successful management of the COVID-19 outbreak domestically, where community cases had been brought down to low or often zero community cases in the final months of 2020, and the discovery of a vaccine, has raised hope of a better 2021. GDP is expected to rebound to a growth rate of +4% to +6% in 2021 with the government undertaking a gradual and cautious reopening of the economy.
Review of 2020
The Islamic finance sector was not shielded from this slowdown. As we know Islamic finance has always existed at two levels in Singapore, one being at the corporate finance level and the other at the wealth management level.
At the corporate finance level, Islamic finance has had to face challenges from traditional power houses Malaysia and Indonesia. Thus, it is no surprise that in 2020, little was heard on this front except for the ESR-Sabana REITs saga although there has been a notable pick-up in Sukuk issuance in these neighbouring countries where both sovereigns and corporations were seen raising money to help with their respective COVID-19 situations.
Instead, in Singapore, as the case has been in recent years, it was the wealth management front that saw more activity in the Islamic finance space, relatively speaking.
On the corporate finance side, the ESR-Sabana REITs merger saga culminated in early December with Sabana’s unitholders scuttling the potential merger at its extraordinary general meeting. For Muslim investors, this avoided what could have been the de-listing of the only Shariah compliant REIT by constitution listed on the Singapore Exchange (SGX) and also the situation whereby the new merged entity, the fourth largest REIT by market share and fifth largest in Singapore by asset size, would itself potentially be non-Shariah compliant.
Another noticeable development was the launch of SGX-listed ValueMax’s first fully Shariah compliant pawnbroking branch in Singapore. The Shariah compliant pawnbroking outlet is ValueMax’s 36th branch but its maiden venture into the area of Islamic pawnbroking. In this joint venture, Ar Rahnu Singapore, provides both advisory on marketing and Shariah compliant-related issues.
In the area of Islamic wealth management, DWS surprised the market by not renewing the prospectus of its Shariah compliant DWS Noor Precious Metals Securities Fund, the only Shariah compliant unit trust buying into the precious metals mining sector available in Singapore. While still open to institutional and accredited investors, retail investors have not been able to subscribe to the fund since early October.
On a brighter note, the Shariah compliant Montreux Healthcare Fund, which is registered under the Monetary Authority of Singapore (MAS)’s restricted scheme has continued to see strong inflows. The private-equity fund, which focuses on the UK specialist healthcare sector, has so far garnered in excess of SG$30 million (US$22.49 million) from Singaporean investors.
Preview of 2021
The present trajectory that Islamic finance is on in Singapore is not expected to deviate much in 2021. Until and unless there are more regulatory changes and incentives to boost the Islamic finance corporate sector, little is expected next year in terms of activities. Thus, yet again, it will be the wealth management segment of Islamic finance that could potentially excite in 2021.
In early December 2020, MAS announced the successful applicants for the various digital banking licensed being offered. For one, we will be eagerly awaiting to see if any of the successful digital full banking license winners will hint making Islamic retail solutions as part of their suite of offerings when they open for business in 2022. One aspect which many hope these new digital banks will potentially look into is in the area of Islamic home financing.
While the Islamic finance landscape in Singapore may not be moving as fast as its neighbors, there are developments on the ground level which continue to make slow but steady progress. In some respect, there have been developments that showcase Singapore’s unique position as a financial center and springboard into the region. For instance, a Singapore-based financial advisory had facilitated the introduction of the Shariah compliant Montreux Healthcare Fund (MHF) into Malaysia by working with a local partner there, OUD Asset Management. The feeder fund, OUD Montreux Healthcare Fund, is regulated by the Securities Commission Malaysia and has since grown substantially with an AUM in excess of RM15 million (US$3.7 million).
Sani Hamid is director of Economy & Market Strategy, Wealth Management at Financial Alliance. He can be contacted at [email protected] Haron Masagoes Hassan is the deputy head and Shariah officer at the Islamic Wealth Advisory unit of Financial Alliance. He can be contacted at [email protected]