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Brunei has been taking steps toward becoming a hub for Islamic finance – a market that, unlike most conventional financial institutions, has remained relatively unscathed by the global credit crisis. Indeed, there is increasing demand for financial products compliant with syariah law (Malaysian Islamic law), not only from Muslims but also other investors around the world....

Brunei has been taking steps toward becoming a hub for Islamic finance – a market that, unlike most conventional financial institutions, has remained relatively unscathed by the global credit crisis. Indeed, there is increasing demand for financial products compliant with syariah law (Malaysian Islamic law), not only from Muslims but also other investors around the world. The resilience of these products, which boast strong underlying assets, is attractive to market players seeking safer havens in the wake of recent failures in derivatives traded by mainstream financial institutions.

In response to the global crisis, the government of Brunei issued $148 million sukuk-al ijarah (Islamic bonds) in January 2009 that are backed by the buying, selling and leasing of property, bringing its total issuance to over $1.3 billion. However, though Malaysia and Bahrain have a high rate of issuance, it is thought that the demand for sukuks is still largely untapped, which could be an opportunity for Brunei to produce more of the Islamic financing structure. The Ministry of Finance permanent secretary Dato Paduka Ali Apong said in a media interview that Brunei aims to issue sukuks at least every two weeks in 2009, with a maturity of three months, one year, two years and more.

However, despite these apparent opportunities, there are also fears that as western governments and regulators look to stricter supervision of banks and conventional securitisation markets, this may discourage the use of Islamic finance instruments and the Islamic banking sector – which relies heavily on asset sales for funding structures.

In late 2008, Brunei's new Islamic Banking Order and the Takaful Order (concerning Islamic insurance, or joint guarantees) were passed. Though the orders focus primarily on Islamic issues, they are the first attempt to align the country with international standards and attract more foreign participants to its offshore and onshore services. The new legislation also seeks to support the sustainability of micro-credit activities and SMEs (small and medium enterprises).

Among wider trends, lawyers note there has been increased inbound investment from countries such as Australia, Malaysia and Canada in the form of setting up operations for contracts in relation to government-initiated projects in the construction and oil and gas sectors.