Islamic Finance In Singapore Case Study

Introduction

Financial institutions across the globe have been transformed in the past few decades. This revolution has been mainly influenced by globalization, privatization, and dramatic advancements in technology, (ukessays). Islamic finance, specifically the demand for Shari’ah-compliant financial products, is in its evolutionary phase, and has experienced exponential growth worldwide over the past few decades. The increasing population of Muslims in the Middle East has driven the rapid expansion of this financial system. After Singapore achieved independence from Malaysia in 1965, the island-state focused on an outward facing economy, due to lack of basic natural resources and a relatively small domestic market. This reflects onto how

The country hosts approximately 120 commercial banks, while only 15 institutions offer Islamic financing options in Singapore, (source). Although this is a very small percentage, it is important to note that the portion of banks offering Islamic services in is increasing significantly. Only five years ago, there was only half of this presence in Singapore, (MAS GOV).

Although expanding, the overall lack of Islamic capital markets in comparison to neighbouring countries is mainly due to the fact that the Muslim society accounts for a very small percentage of the population in Singapore. More specifically, among the top fifteen countries offering Islamic finance alternatives, Singapore is the one of the few with a non-Muslim majority, (MAS GOV). Because of the low awareness of Islamic finance’s foundational concepts and the products available to the local citizens, there has not been an overwhelming demand for a flourishing market, (Han,

While traditional banks mainly earn income through charging interest on debt, Islamic banks focus on profit-sharing programs based on the Shari’ah rules. These financial products and services forbid all forms of usury, gambling, and speculation. In contrast to the Islamic banking sector, traditional banks offer a wide variety of financial products and services at competitive interest rates. Because Shari’ah regulations prohibit interest (riba), the traditional banking sector has made it difficult for the Islamic banks to gain a loyal consumer