Islamic finance and banking remains at the heart of the country’s interest in growing the overall finance sector alongside conventional banking through various efforts led by both public and private institutions.
The industry has been identified as one of the key focus areas under the Brunei Darussalam Financial Sector Blueprint, specifically efforts in strengthening regulatory and legal framework as well as ensuring standardisation of Islamic products and services aligned with international practices. The blueprint affirms the country’s vision and commitment to strengthen its position as an international Islamic financial hub with a diverse foreign presence and higher level of participation in the domestic Islamic financial markets, particularly in the sukuk and Takaful market.
Brunei Darussalam will continue to play its role in accelerating the internationalisation of Islamic finance through several initiatives, such as introducing more Syariah-compliant financial products and services that meet diverse global demands.
The country’s Islamic financial ecosystem comprises Islamic banks, Takaful operators, Islamic investment dealers, sukuk and other ancillary services. The Brunei Darussalam Central Bank (BDCB) and local Islamic financial institutions join the international community through membership under the Islamic Financial Services Board (IFSB).
At present, Brunei has a two-tier Syariah governance structure comprising the Syariah Financial Supervisory Board (SFSB) with BDCB as secretariat and an internal Syariah Advisory Body (SAB).
The SFSB, established under the Syariah Financial Supervisory Board Order, 2006, has a mandate to ascertain the Islamic law on any financial law, to issue rulings referred to it, and to advise on any Syariah issues relating to Islamic financial businesses, activities or transactions.
An internal SAB within each Islamic financial institution may consult with the SFSB, through BCDB, on Syariah matters relating to any business which is based on Syariah principles.
Islamic finance activities are governed under the Islamic Banking Order (2008) for Islamic banks and Takaful Order (2006) for the Takaful sector. Islamic capital market activities are governed under the Securities Market Order 2013 and its supplementary legislation Securities Markets Regulations 2015.
In order to prepare a well-established infrastructure for Islamic finance, the Syariah Governance Framework was introduced to ensure that the structure, processes, products and services of Islamic financial institutions are in accordance with Syariah principles.
Audits will be conducted to ensure the products and services provided by these financial institutions are in compliance with Syariah principles. Financial institutions will also need to adhere to the product approval guidelines, which include a set of procedures when determining the category of approval required for new Islamic financial products or any enhancement or variation made to an existing product.
The Syariah Governance Framework hopes to meet the expectations of BCDB on the Islamic financial institutions’ Syariah governance structure, processes and arrangements to ensure that all its operations and business activities are in accordance with Hukum Syara’.
Meanwhile, in the ICD-Refinitiv Islamic Finance Development Report 2022: Embracing Change, Brunei Darussalam was ranked 12th among 136 assessed countries globally.
The report, based on 2021 data, revealed that Brunei recorded 31 points in the Islamic Finance Development Indicator (IFDI), while the global average indicator value declined to 9.0 in 2022 from 11.0 for 2021. The IFDI 2022 indicator score measures the state of the development of the Islamic finance industry in 2021.
The report also provides IFDI rankings for notable Islamic finance markets around the world. The recent IFDI is based on an enhanced model incorporating new metrics related to Environment, Social and Governance (ESG) and Islamic FinTech, and changes to the weightage of each indicator.
The five main indicators for IFDI are financial performance, governance, sustainability, knowledge and awareness indicators.
Brunei maintained its top place in regulations, a sub-indicator of governance measured by regulations issued for Islamic banking; specific accounting; Syariah governance; Takaful; sukuk; Islamic funds; and the FinTech sandbox. The country also ranked fourth for sub-indicator on events under the awareness indicator, and fifth place for sub-indicator on research under the knowledge indicator.
In terms of the financial performance indicator, Brunei attained eighth place in Other Islamic Financial Institution (OIFI) assets with a value of USD2 billion. This includes assets in FinTech companies, investment firms, financing companies, leasing and microfinance firms.
The Islamic finance sector in the country has witnessed significant growth in market share over the total financial sector in terms of assets. In its first semi-annual policy statement released in July 2022, BDCB recorded growth in the financial sector with total assets of 7.9 per cent year-on-year and total asset value of BND23.9 billion as of the first quarter of 2022. The Islamic finance sector accounted for 58 per cent with BND13.9 billion.
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