With Western financial institutions beginning to realize their potential slice of the sector, many are now offering sharia-compliant products and setting up offices in South-east Asia. Malaysia, with its largely Muslim population, has recently opened up its financial industry to foreigners in a push to promote the region as an Islamic financial hub. Those who have already caught onto the growing industry are Citigroup, HSBC, Deutsche Bank and Lloyds TSB.
Director of Takaful Malaysia, Hassan Kamil, told OBG, "we are quite innovative in terms of Islamic finance. Particularly in coming up with products that are currently being adopted in other countries. I think Malaysia is a pioneer in this area. We believe this is our strength, we believe this is a niche market."
After American International Group (AIG) opened a takaful unit in Bahrain last year with 300m potential buyers in the Middle East and South Asia of Islamic insurance, other insurance giants have followed suit. Recent newcomers starting up Islamic reinsurance businesses have included the world's largest re-insurer, Swiss Re, and the fourth largest, Hannover Re.
Islamic finance is growing at 15 to 20% per year in Malaysia, according to the Central Bank of Malaysia. More specifically, AIG has recorded premium rates rising 12 to 15% a year in the Middle East and South Asian markets. In a bid to capture market share, Germany's Allianz Group, the world's second largest insurance firm, entered the Islamic insurance business last year focusing on Malaysia and Indonesia while Dubai's biggest lender, Emirates Bank, has sought Singapore as its gateway to provide Islamic banking services in South East Asia.
At the formal opening of their offices this week, Emirates Bank's Asia Pacific representative, Brian Shegar, said it is estimated that Islamic finance will account for 30% of Malaysia's total banking pie by 2010. According to Bank Negara Malaysia, the domestic insurance industry's total assets stand at $2bn today.
The Central Bank of Malaysia considers investments from non-Muslims a key growth factor for Islamic finance. Especially since a quarter of Malaysia's Islamic banking business is conducted by non-Muslims.
London has also positioned itself as a centre for trading in Islamic funds. UK-based insurance giant Lloyds of London has made a move to capitalize on Malaysia's re-insurance market, predicting it to grow to about $100m by 2010.
Lloyds chairman Lord Peter Levene told the local media, "We regard Asia as a hugely important market; re-insurance business in Malaysia this year is running at about $70m and we can see this increasing in two to three years."
In a bid to tackle the reinsurance sector in Malaysia, Lloyds of London has recently incorporated an offshore unit in Labuan. Levene announced plans to offer retakaful, or Islamic re-insurance, in the near future.
Once the Labuan Offshore Financial Services Authority (Lofsa) grants Lloyds its licence, Lloyds Labuan can expect to begin underwriting within a few weeks. With the company's premium income reaching $71m in Malaysia last year, Levene said Islamic insurance is not something he wants Lloyds to miss out on.
At the same time, banks and insurers outside Malaysia are hoping to broaden their services by incorporating Islamic insurance on their home ground. With large Muslim communities in Europe and the UK, there is a wealth of potential buyers of Islamic insurance. Takaful Malaysia's Kamil told OBG, "I have had numerous inquiries, not just from GCC countries but recently even from UK; in fact a Scotland-based company wants us to venture abroad and start a takaful operation in the UK."
With the high demand from both Muslims and non-Muslims for Islamic insurance products, Islamic and conventional banks are expanding onto an international playing field in order to supply the needs.