Singapore scored a major economic boost when, despite the gloomy global economic forecast, it hosted the first Formula One car race after three years of COVID-19 pandemic lockdowns. Even though the racing event was important for the economy, the most conspicuous development was that the world’s largest hedge fund, Bridgewater Associates, and Asia’s second-richest person, Mukesh Ambani, moved to the city-state. Many family offices found Singapore as the best place to seek economic refuge in these uncertain times, with Russia and Ukraine at war; Europe coping with the energy crisis; the UK dealing with political turmoil; the US struggling with inflation; China’s economic slowdown; and Hong Kong experiencing an exodus of finance professionals.

These developments secured Singapore’s position as the top financial center in Asia and the third best in the world, according to the Global Financial Centres Index for 2022. All in all, the Singaporean government remains cautious and prudent in its economic and trade policies. This is evident in the Monetary Authority of Singapore (MAS)’s fourth tightening of its monetary policy in the last 12 months and the SG$1.5 billion (US$1.06 billion) support package to combat the running near 14-year high inflation, as well as its efforts toward supply-chain resilience via bilateral cooperation, such as the Singapore–Australia Green Economy Agreement.

Review of 2022
Singapore may be a major international financial hub, but its Islamic finance industry remains very much a work in progress. Key industry stakeholders have been observing increased interest and demand for Islamic financial products over the last year from both the Muslim and non-Muslim communities. This can be attributed to the population’s higher disposable income and personal finance literacy advocacy efforts by the government and private sector. However, the retail market is still missing Shariah compliant mortgage facilities and insurance products, on top of the limited Shariah compliant investment options and vehicles.

The core impediment to the industry’s progress is the need to increase Islamic finance awareness at the consumer level in order to organically foster robust retail demand to support the introduction of new products and spur MAS to formulate and integrate Islamic finance into Singapore’s Financial Services Transformation Map. Table 1 summarizes the key developments in the Islamic finance industry in Singapore.

Despite the slow progress of its Islamic finance industry, Singapore is performing relatively well in terms of the Halal economy; as it climbed eight positions from 2021 to seventh place in 2022, according to the State of the Global Islamic Economy Report for 2022 by Dinar Standard. This was primarily due to the increase in modest fashion; media and recreation; pharmaceuticals; and cosmetics exports to OIC nations. Additionally, Singapore scored well on the awareness sub-indicator, as numerous educational courses and events were held across all sectors.

Preview of 2023
The potential for Singapore to promote and support Islamic financial and banking operations is generally recognized for its global financial hub status, despite the country’s relatively modest size of the Islamic finance industry. Furthermore, being located between three of the world’s foremost centers in Islamic banking and finance (Indonesia, Malaysia and Brunei), the opportunities to serve an estimated 300 million Muslim population are enormous, along with the additional Muslim market from the Middle East, the US and Europe.

Moreover, amid the bleak backdrop of inflation and recession, 2023 is anticipated to be much more exciting than 2022 for Singapore’s Islamic finance industry. Among the developments expected are the following:
• A hedge fund entity offering a Shariah compliant alternative to its existing fund
• An updated Shariah-screening methodology for stocks
• The operational commencement of the Singapore community Waqf (Wakaf Masyarakat Singapura),
• The launch of more Shariah compliant products.

While further developments are anticipated in the upcoming year, the details currently remain behind the scenes. However, much of the developments expected are ground-up initiatives and innovations, which appear to address specific needs and opportunities of Singapore’s Islamic finance stakeholders. This includes (but is not limited to):
• Structural transformation on the industry level and coordinated efforts by market participants.
• Provision of structured Islamic finance educational programs for the community and professionals.
• Utilization of the CPF (Central Provident Fund — the local pension scheme) funds for Islamic home financing and Islamic investment products.
• The offering of Shariah compliant green, ESG or SDG financial products and investment portfolios.
• Re-introduction of robust Takaful products.

Conclusion
2022 has been a fascinating development for the Singaporean economy, not just as the preferred destination for conventional funds but also for its promising progress in the overall Islamic economy (Halal-driven growth).

Despite the grim global outlook, opportunities abound for Islamic finance, especially in the fintech and ESG space. However, more coordinated efforts must be made for Singapore’s Islamic finance industry to stand as tall as its neighbors. The salient key to spurring much-needed progress and unlocking its potential is a structural transformation at the industry level, aided by MAS regulation support and coordinated efforts to increase consumer awareness of Islamic finance.

Muhammad Ridhwaan Radzi is the managing director of Islamic Finance Singapore, Singapore and Zul Hakim Jumat is a researcher at the Center for Islamic Economics and Finance, College of Islamic Studies, Hamad Bin Khalifa University, Qatar. They can be contacted at [email protected] and [email protected] respectively.