Singapore’s economic highlights and upcoming innovations in Islamic finance

First Half 2024 Islamic Finance Country Report for Singapore

Written by Maryam Aziz and Muhammad Ridhwaan Radzi for Islamic Finance News under Special Reports for Singapore

Introduction

Singapore has again proven its competitiveness as a renowned global financial hub. In September 2023, the results of the Global Financial Centers Index produced by Z/Yen Partners ranked Singapore as Asia’s top financial center, just ahead of Hong Kong (Rogers, 2023). Relevant data was drawn from the UN and the World Economic Forum to rate the competitiveness of financial centers across categories ranging from telecom infrastructure to regulation and human capital.

Economic Overview

The maritime industry, mainly Singapore’s container throughput, grew by 4.6%, reaching a new high of 39.01 million twenty-foot equivalent units (TEUs) compared to the previous record of 37.57 million TEUs in 2021 (Maritime and Port Authority of Singapore, 2024). In the third quarter of 2023, Singapore’s manufacturing sector registered a positive trend, posting a 0.5% quarter-on-quarter growth, reversing the contraction observed earlier in the year (Interesse, 2023).

Furthermore, the stock market development has also been gaining international traction, as the Monetary Authority of Singapore (MAS) has set strategic goals to establish Singapore as a center for digital asset innovation. The strategic asset monetization by Singtel and Keppel demonstrates Singapore’s proactive approach to using assets for development and sustainability (Ridhwaan & Hakim, 2023).

Islamic Finance Landscape in Singapore

According to the ICD-LSEG Islamic Finance Development Indicator Report 2023, Singapore ranked 23rd globally in the overall development of Islamic finance, making it the second most developed Islamic finance market among Muslim-minority countries. Furthermore, significant businesses have resorted to Islamic financing options as an alternative to conventional financing. The Singapore-headquartered owner and operator of maritime transportation assets and specialized services, AET, took out a US$100 million sustainability-linked Islamic revolving credit facility (RCF-i) with Maybank Singapore (AET Tanker Holdings, 2023).

Key Developments in Islamic Finance

In the first quarter of 2024, Singapore’s economy grew by 2.7% year-on-year, extending the 2.2% expansion in the previous quarter (Ministry of Trade and Industry Singapore, 2024). This growth could be attributed to one of the most impactful individuals contributing to Singapore’s tourism industry’s economic development, American superstar Taylor Swift. The Singapore Government even offered subsidies of up to US$3 million (SG$4 million) for each concert – in exchange for the artist agreeing not to perform elsewhere in Southeast Asia during The Eras Tour (Koh & Lee, 2024).

Furthermore, Malaysia and Singapore signed a Memorandum of Understanding (MoU) to work on a Johor-Singapore Special Economic Zone (JS-SEZ) to strengthen economic connectivity between Johor and Singapore. This MoU includes but is not limited to enhancing cross-border flow of goods and people, strengthening the business ecosystem within JS-SEZ to support investments, implementing a passport-free QR code clearance system on both sides and adopting digitized processes for cargo clearance at the land checkpoints (Ministry of Trade and Industry Singapore, 2024a).

Education and awareness regarding Islamic finance in Singapore are steadily on the rise, with ground-up initiatives from IFSG, iBantu, Maybank, MUIS, Modern Muslim Finance, FAiWA and even Mendaki, among many others, conducting Islamic finance-related events which is a positive indicator of things being developed behind the scenes.

Economic Cooperation and Regional Connectivity

Singapore aims to maintain its regional economic ties, and the nation is also strengthening economic cooperation with the Indian state of Tamil Nadu through expanded investments into the state’s sustainability and infrastructure sectors. CapitaLand has committed to additional investments in Chennai, which will be deployed across business parks, logistics, warehouses and a data center. Lionsbot, which designs and manufactures automated industrial-scale cleaning robots, will partner with top universities in Tamil Nadu to drive the development of engineering and robotics talent. This cooperation includes setting up training laboratories and designing hardware and software courses.

EnterpriseSG also stated that it is “committed to deepening our support for companies interested in entering the market, and helping them capture opportunities alongside Tamil Nadu’s ambition to be a US$1 trillion-dollar economy by 2030’ (Ministry of Trade and Industry Singapore, 2024c).

Singapore’s economic growth remains set to recover in 2024 despite a softer Q4 2023 expansion compared to advanced estimates. While the volume of global mergers and acquisitions (M&A) transactions dipped in 2023, M&A activity in 2024 is forecasted to witness a 16.8% surge between 2023 and 2024, for a total transaction value of US$27.43 billion by 2024. Since Singapore’s interest rates follow the movements of the US Federal Reserve (Fed), the projected interest rate cuts by the Fed will be mirrored in Singapore and potentially spur an even more significant increase in borrowing – including for acquisition financing (Wong et al., 2024).

Market Outlook for Islamic Finance

According to the same report, growth in Singapore’s Islamic financing sector has been relatively slow over the last decade. However, this is predicted to change, given the recent resurgence of Islamic financing activity in the wider Southeast Asia region. Indonesia’s Islamic financing market is expected to expand by 10% to 12% in 2024. Moreover, Islamic banking assets are expected to grow 8% over the next two years.

There are also whispers in the local Islamic finance scene of multiple product launches, which the Republic can expect in the second half. Still, regulation and marketing will prove critical factors in its overall success.

Conclusion

Singapore has seen relatively stable economic growth and expansion in financial markets, but Islamic finance has seen only ground-up and organic growth, as observed in Table 1.. It could be counted that should the multiple successes of product launches and initiatives be realized, then it could be seen as an Islamic finance model for other Muslim minority countries to replicate.

Table 1: Updates by Local Industry Stakeholders

Sector	Organization	Updates
Statutory body	Majlis Ugama Islam Singapura (MUIS)	Ahead of the Wakaf Masyarakat Singapura (WMS) launch, MUIS formed a protem committee to operationalize WMS and appointed an Islamic Legacy Planning Workgroup to promote legacy planning.
Bank	Maybank	Maybank Singapore is Maybank Group’s regional offshore Islamic wealth management hub and leverages the Group’s capabilities and expertise to broaden opportunities for customers through Islamic wealth solutions. Over 200 relationship managers were trained in foundational Islamic wealth management knowledge in the first half of 2024, equipping them with the knowledge to offer clients advice on end-to-end Islamic wealth solutions. The Bank has also expanded its suite of wealth solutions given the ever-evolving financial landscape and increasing demand for Shariah compliant products and services. These include increasing the number of Shariah compliant unit trust offerings from three to 14 – which is the largest offering of Shariah compliant unit trust funds in Singapore to date – and the progressive launch of Islamic Structured Deposits, Structured Notes, DCI, FX and Lombard later this year which is supported by the Avaloq Islamic platform thus offering customers end-to-end Shariah compliant solutions.
Brokerage	Interactive Brokers	Interactive Brokers launched IBKR Desktop, a new trading platform engineered for today’s traders who demand simplicity but value Interactive Brokers’ powerful trading tools.
Asset Management Bank Brokerages	Lion Global Investors Limited	Singapore’s first Shariah compliant liquidity fund, the Lion-BIBDS Islamic Enhanced Liquidity Fund, was incepted in March. It is an actively managed, broadly diversified portfolio of global Shariah compliant short-term fixed-income instruments, including but not limited to Islamic deposits, money market instruments and Sukuk approved by the Shariah Advisory Body of BIBDS. Filling a market gap in Shariah compliant cash management funds, the fund is open to retail and institutional investors. Its key features include stable returns, no fixed term and a high credit quality portfolio.
	Horizon Capital	In 2021, Horizon Capital pioneered Shariah Commodity Trade Finance with its Horizon Capital Shariah Fund – Global Trade Finance Strategy, providing halal investors exclusive access to this market. The strategy aims to achieve an absolute return by investing primarily in short-term, self-liquidating commodity Murabahah transactions secured by physical commodities as collateral.
	Walton Global	Walton Global and/or its affiliates (Walton) continue expanding its Shariah investment offerings to sophisticated investors. In April 2024, Walton announced the first Shariah compliant financing facility within its homebuilder land financing program. Then, in June 2024, Walton was a sponsor for the launch of the US Homebuilder Income Fund, a first-of-its-kind Shariah compliant income fund structured under Singapore’s now globally respected VCC fund structure. Koru Family Office, a Singapore registered fund manager, is the appointed fund manager. The fund expects to scale quickly; it enjoys exclusive access to a US$500 million pipeline of projects slated for near-term development by a Fortune 500 US homebuilder.
	Principal Islamic	Principal Islamic Asset Management (Principal Islamic), a joint venture between Principal Financial Group and CIMB Group and based in Kuala Lumpur, is one of the sponsors for Islamic Finance Singapore’s Rizq Symposium 2024, held in February 2024. Principal Islamic is the Shariah Investment Manager for four sub-funds under the Principal Global Investors Fund, an open-ended umbrella fund constituted as a unit trust and authorized by the Central Bank of Ireland pursuant to the Undertakings for the Collective Investment in Transferable Securities (UCITS) Regulations. The four funds are the Global Sukuk Fund, Islamic Asia Pacific Dynamic Income and Growth Fund, Islamic Global Multi Asset Fund and Islamic Global Responsible Equity Fund which are registered in Singapore as restricted schemes, allowing Singaporean institutional investors to have access to more Shariah compliant fund offerings. Two Singaporean banks distribute some funds through a distribution arrangement with Principal Islamic.
Fintech	Hugosave	Following Hugosave’s Shariah compliant certification, the savings app plans to roll out more features to advance financial inclusivity and good financial habits among the Muslim community.
	Arabesque Holding	Portfolio Dragon has managed US$600 million in AUM for the last three years, including the Arabesque SICAV, their flagship fund. A recent global survey ranked this fund seventh out of 1991 ESG funds. Through this achievement, Portfolio Dragon has developed autonomous investing, empowering the next generation of portfolio and wealth managers with AI-powered active customisation, offering better performance at the price of passive investment. Their API-first and cloud-native technology delivers Portfolio Management as a Service, combining cutting-edge AI technology and impact data from their sister company, ESGBOOK, into a single platform. With over 10,000 equity funds currently available on the Dragon and growing by 1,000 per week, their AI outperforms approximately 70% of all funds on average by 120bps. The platform has been utilised by Arabesque clients such as Maybank and Etoro to launch Islamic equity portfolios. Public access to the Dragon is scheduled to launch on the 22^nd July 2024.
	Silverlake Axis	SGX listed Silverlake Axis, a prominent financial technology and digital economy solution provider servicing the Islamic financial services industry in the region which received the Best Data Integration and Framework Award at the Asian Banker Awards in Hong Kong for the successful implementation of UOB’s regional transformation. Silverlake Axis also bagged the prestigious World Digital Best of The Best Award from the KSI Strategic Institute for Asia Pacific at the 3rd World Digital Economy Technology Summit 2024 in Jakarta.
	iBantu	iBantu, established in 2022, focuses on two key areas: Islamic Finance Consulting and Training; Blockchain (Web 3.0) and IT Solutions. Their blockchain products include Digital Philanthropy, Smart e-Halal Certification, Halal Supply Chain Traceability Tracker and eRegister. Early this year, Baitul Mal Hidayatullah (BMH) in Indonesia, which has 11 million members, partnered with iBantu to upgrade from Web 2.0 to Web 3.0. This upgrade aims to enhance the transparency and traceability of Zakat and Infaq funds using blockchain technology.
Muslim-friendly financial advisory groups	FAiWA	FAiWA has introduced another Shariah alternative investment: The Horizon Capital Shariah Fund – Global Trade Finance. This accredited investor-only fund invests primarily in short-term, self-liquidating commodity Murabahah transactions secured by physical commodities as collateral.
	Modern Muslim Finance	Modern Muslim Finance conducted Wasiat and Faraid classes, including their first live session on the 1^st June, educating Singaporean families on Islamic inheritance planning and securing generational legacies.
	Ascent Islamic	In the first half of 2024, Ascent Islamic partnered with TravelConnect to disseminate financial knowledge through podcasts and seminars. They also participated in the Rizq Symposium with IFSG (Islamic Finance Singapore) and hosted a successful webinar on women’s independence in marriage.
	iFAST Global Markets (iGM) – Direct Advisory Arm of iFAST Financial	The Muslim Investment Advisory Team was set up five years ago and oversees over US$80 million of clients’ assets. They provide comprehensive financial planning to predominantly Muslim civil servants.
Venture capital	Gobi Partners	Gobi supports tech-driven growth companies serving Muslim consumers, businesses and communities globally through its TaqwaTech vertical. Gobi recently invested in Singapore-based Bitsmedia, which operates MuslimPro, an app with over 150 million downloads across 190 markets, and Qalbox, a global content streaming service celebrating Muslim identities and cultures.
Community	SMU IBFS	In January 2024, SMU IBFS collaborated with NTU Muslim Society and IFSG to run a two-part series on Islamic finance titled ‘Finance 101’.
Community	IFSG	IFSG, a WhatsApp group turned Shariah advisory consortium, recently pronounced Hugosave as Shariah compliant at the Rizq Symposium 2024. The company is also working with multiple local stakeholders to elevate Islamic finance further.

Source: Authors’ own

Maryam is currently an Economics major at National University of Singapore and Muhammad Ridhwaan Radzi is the managing director of Islamic Finance Singapore and RizqX.