Brunei

Islamic banks merge
By M K Anwar February 1, 2006 | Borneo Buletin By command of His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam, the Ministry of Finance yesterday announced the merger of Islamic Bank of Brunei Ltd (IBB) and Islamic Development Bank of Brunei Ltd (IDBB) implemented in accordance with the process of the law and sanction from the High Court. This came following the announcement made by the Ministry of Finance last July in an effort to further strengthen the Islamic financial institutions in Brunei, in particular the banking sector and insurance, and make it more sustainable and competitive. Following the merger, His Majesty has consented for the establishment of a new Islamic bank called the Islamic Bank of Brunei Darussalam Ltd (IBBD) that will take over the management, operation and integration of the banks involved in the merger. This includes taking over of all the present officers and staff including those still on trial in both banks, assets and liabilities as well as their subsidiaries. A press statement from the Ministry of Finance stated that the merger process would be implemented in stages to ensure continuity and smooth running of operations and tran-sactions without affecting the services offered to customers. His Majesty has also consented for the appointment of Board of Directors, Syariah Advisory Committee and Managing Director for the new Islamic bank. YB Pehin Orang Kaya Hamzah Pahlawan Dato Paduka Hj Abdullah bin Begawan Mudim Dato Paduka Hj Bakar, Minister of Development, will be the Chairman of the Board of Directors. YB Pehin Orang Kaya Seri Dewa Major General (Rtd) Dato Seri Pahlawan Hj Mohammad bin Hj Daud, Minister of Culture, Youth and Sports, will be the Deputy Chairman. Other members of the Board of Directors include Pehin Dato Paduka Seri Laila Jasa Awang Hj Ahmad Wally Skinner, Dato Seri Setia Awang Hj Metussin bin Hj Baki and Awang Hj Bahrin bin Abdullah. Awang Hj Muhammad Syaippudin bin Hj Abdullah has been appointed as the Managing Director. The Corporate Secretary for IBBD will be Awang Hj Mohd Rozaiman bin Dato Paduka Hj Abd Rahman. Meanwhile, members of the Syariah Advisory Committee will be chaired by Pehin Dato Paduka Seri Setia Ustaz Awg Hj Salim bin Awg Hj Besar with Pehin Dato Paduka Seri Setia Ustaz Awg Hj Suhaili bin Hj Mohiddin, Dato Seri Setia Ustaz Awg Hj Metussin bin Awg Hj Baki and Awg Hj Japar bin Hj Mat Dain @ Maidin as its members.
Awg Hj Mazanan bin Hj Yusof will be the Secretary of the Syariah Advisory Committee. The appointment of the new members will take effect from today, February 1, for a period of two years. The merger of the two banks hopefully will contribute greatly towards the strengthening of the nation's economy, especially its financing sector and the Islamic banking, through effective and efficient services and also by venturing into new banking services such as investment banking, fund management, corporate advisory, investment advisory and many more. The merger further opens the opportunity for the bank to establish its operation internationally. The press statement also said the Government of His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam through the Ministry of Finance will always provide continuing encouragement and support, through continuous monitoring and supervision in strengthening the financial sector in line with the development of international banking sector. The development of the nation's banking sector will in turn prove beneficial for the people as well.
Brunei is served by ten banks, many of which are branches of major global players. Competition among the banks is very stiff as they battle to carve out a bigger chunk of Brunei's 300,000-population market for themselves. In addition, there are four finance companies in operation to supplement the banks in providing financial services to Brunei residents. The banks in Brunei are: Baiduri Bank Berhad Citibank NA HSBC Islamic Bank of Brunei (IBB) Berhad Islamic Development Bank of Brunei Berhad Malayan Banking Berhad RHB Bank Bhd Standard Chartered Bank Tabung Amanah Islam Brunei United Overseas Bank (UOB)
Finance companies are Baiduri Finance Berhad HSBC Finance (Brunei) Bh IBB Kredit Bhd Tabung Amanah Islam Brunei
Brunei banks have coped with the increasingly robust competition by introducing new products. But in venturing to advance their businesses, banks in Brunei also play a complementary role in the government's effort to revive the local economy. For instance, the $20-million Working Capital Credit Fund is part of the measures under the short-term Economic Recovery Plan by the Economic Council's Secretariat. The plan provides Small and Medium Enterprises (SMEs) with access to low-interest Government-backed loans to improve their liquidity and capability to take part in economic recovery projects, as well as to undertake productive economic activities. In 2001, the Brunei banking and finance industry accounted for 5 per cent of the country's Gross Domestic Product (GDP), amounting to $389 million. The government of His Majesty is committed toward expanding the industry even further by promoting the country as an International Offshore Financial Centre (IOFC), while boosting its stature as a major player in Islamic banking and insurance. Brunei Darussalam has no central bank and the government via the Banking Acts and Finance Companies Act regulates the local banking industry. The Ministry of Finance, through its Financial Institutions Division meanwhile regulates all banking activities to ensure "a stable and fiscally sound business environment" while its Brunei Currency Board is responsible for issuing and managing the local currency. The Brunei Association of Banks meanwhile sets the prime lending rates in the Sultanate. The Brunei dollar is on par with the Singapore dollar, and both currencies are freely traded in the respective countries. There is no foreign exchange control in Brunei as local banks allow non-resident accounts to be maintained and there is no restriction on borrowing by non-residents. The Sultanate, offers financial investors four types of banking licences and has incorporated laws that protect investors against money laundering with a financial expert putting it succinctly, "If you're a criminal, Brunei is not for you." The four types of banking licence comprise full international banking, international investment banking, international Islamic banking and a restricted banking licence. The country's 340,000 residents who have a GDP per capita of US$13,500, is proof that Bruneians have strong purchasing power.
Furthermore, the government-run Brunei Investment Agency (BIA) has many revenue sources as it seeks to invest country's wealth, which comes from the country's oil and gas revenue, the workers' provident fund (TAP) and numerous other sources of income. A local entrepreneur commented that all these reasons are "an attractive bait for fund managers considering setting up in Brunei". It is probably due to these reasons that the Royal Bank of Canada (RBC) - the first institution to win the BIFC's foreign bank licence - opened a branch here in July 2002. The positive outlook of Brunei's economic future - helped by the introduction of the ASEAN Free Trade Agreement (AFTA); close proximity to the large markets of China and Northeast Asia, as well as India and the Asian sub-continent; and bright prospects for strong economic growth within the region - makes the country a potential gold mine for financial investors. The local banks, through their financial facilities, participate actively to promote domestic economic activity. Coupled with "continuous support" from the government to realise local enterprise, the prospects for economic development in Brunei are expected to improve in the years to come. With Islam as the main religion in the country, it is not surprising to note that Islamic banking is very big in Brunei. Islamic banking means providing banking products and services based along the lines of Islamic Syariah laws - the simplest being the absence of trade in items prohibited in Islam like alcohol, gambling and non-halal foodstuff, as well as usury in all transactions. As His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam declared when launching the Islamic Bank of Brunei Berhad (IBB) in 1993, "the establishment of IBB is one of the ways of applying Islamic practices into the financial administration and management of the country." The Islamic financial system employs the "concept of participation in the enterprise, utilising the funds at risk on a profit-and loss-sharing basis." However, this does not mean that investments with Islamic financial institutions are pure speculation; careful investment policy, diversification of risks and prudent management could ensure profitable returns. It is estimated that Islamic banking globally are managing between US$200 billion to US$500 billion in funds today. The sector grows at a rapid pace because of its "valueoriented ethos that enables it to draw finances from both Muslims and non-Muslims alike." --Courtesy of Brunei Year Book
The Brunei Currency and Monetary Board (BCMB) is the central bank of the State of Brunei. It was rechartered on February 1, 2004 pursuant to the Currency and Monetary Order of 2004.
Contents

1 History 2 Organization of the BCMB 3 References 4 External links
History
The Brunei Currency Board was established on June 12, 1967 and the introduction of the Brunei Dollar as the new currency of Brunei in replacing the Malaya and British Borneo dollar after the Currency Union Agreement between Malaysia, Singapore and Brunei was terminated and all three countries issued their own currencies which continued to be interchangeable until May 8, 1973 when Malaysia terminated the agreement with Singapore and Brunei[1]. The Currency Interchangeability Agreement between Singapore and Brunei is still existent. On 27 June 2007, Singapore and Brunei celebrated the 40th anniversary of the Currency Interchangeability Agreement (since 12 June 1967) with the joint-issue of the commemorative $20 notes.[2] The Brunei Currency Board was dissolved and rechartered under the new name the Brunei Currency and Monetary Board pursuant to Section 3-1 of the Currency and Monetary Order of 2004 on February 1, 2004[3].
Organization of the BCMB
Minister of Finance and Chairman of the BCMB Sultan and Yang di-Pertuan Hassanal Bolkiah
Members: Dato Paduka Awang Haji Ali bin Apong - Permanent Secretary, Ministry of Finance Dr. Awang Haji Mohd Amin Liew bin Abdullah - Managing Director of Brunei Investment Agency, Ministry of Finance Datin Paduka Dayang Magdalene Chong - Solicitor General, Attorney General's Chambers, Prime Minister's Office Dato Paduka Haji Junaidi bin Pehin Orang Kaya Pekerma Setia Dato Paduka Haji Hashim - Director, Badan Tanmiah Harta Majlis Ugama Islam
Background Note: Brunei

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Press Release US Department of State Background Notes Background Note: Brunei PROFILE OFFICIAL NAME: Brunei Darussalam Geography Area: 5,765 sq. km. (2,226 sq. mi.), slightly larger than Delaware. Cities: CapitalBandar Seri Begawan. Terrain: Eastflat coastal plain rises to mountains; westhilly lowland with a few mountain ridges. Climate: Equatorial; high temperatures, humidity, and rainfall. People Nationality: Noun and adjectiveBruneian(s). Population (2008 est.): 398,000. Annual growth rate (2007 est., Government of Brunei): 2.1%. Ethnic groups: Malay, Chinese, other indigenous groups. Religion: Islam. Languages: Malay, English, Chinese; Iban and other indigenous dialects. Education: Years compulsory9. Literacy (2006)94.7%. Health: Life expectancymen 76.6 years, women 79.8 years. Infant mortality rate (2008, Government of Brunei)7.0/1,000. Government Type: Sultanate (Malay Islamic Monarchy). Independence: January 1, 1984. Constitution: 1959. Branches: ExecutiveSultan is both head of state and Prime Minister, presiding over a fourteenmember cabinet. Legislativea Legislative Council has been reactivated after a 20-year suspension to play an advisory role for the Sultan. Judicial (based on Indian penal code and English common law) magistrates courts, High Court, Court of Appeals, Judicial Committee of the Privy Council (sits in
London). Subdivisions: Four districtsBrunei-Muara, Belait, Tutong, and Temburong. Economy GDP (2008, Government of Brunei): U.S. $14.780 billion (BND 20.397 billion; 2008 Brunei Darussalam Statistical YearbookBDSY). Growth rate (2008, Government of Brunei): -1.9%. Natural resources: Oil and natural gas. Trade: Exportsoil, liquefied natural gas, petroleum products, garments. Major marketsJapan, Indonesia, Korea, Australia, India. Importsmachinery and transport equipment, manufactured goods. Major suppliersASEAN, United States, Japan, China. PEOPLE Many cultural and linguistic differences make Brunei Malays distinct from the larger Malay populations in nearby Malaysia and Indonesia, even though they are ethnically related and share the Muslim religion. Brunei has hereditary nobility, carrying the title Pengiran. The Sultan can award to commoners the title Pehin, the equivalent of a life peerage awarded in the United Kingdom. The Sultan also can award his subjects the Dato, the equivalent of a knighthood in the United Kingdom, and Datin, the equivalent of damehood. Bruneians adhere to the practice of using complete full names with all titles, including the title Haji (for men) or Hajah (for women) for those who have made the Haj pilgrimage to Mecca. Many Brunei Malay women wear the tudong, a traditional head covering. Men wear the songkok, a traditional Malay cap. Men who have completed the Haj can wear a white songkok. The requirements to attain Brunei citizenship include passing tests in Malay culture, customs, and language as well as the national Malay Islamic Monarchy (MIB) philosophy. Stateless permanent residents of Brunei are given International Certificates of Identity, which allow them to travel overseas. The majority of ethnic Chinese in Brunei are permanent residents, and many are stateless. An amendment to the National Registration and Immigration Act of 2002 allowed female Bruneian citizens to transfer their nationality to their children. In May 2006, the law changed to allow citizenship to permanent residents who have contributed to the countrys economic growth, to women married to a citizen for two years, to women married to permanent residents for five years, and to children of permanent resident fathers after the age of two years and six months. According to unofficial sources there are approximately 20,000 stateless persons in the country, including persons born and raised in the country who were not automatically accorded citizenship and its attendant rights but were granted permanent resident status. In July 2009, the Land Code Strata Act, which allows permanent residents to own units of multistory property for a maximum of 99 years, came into force.
Oil wealth allows the Brunei Government to provide the population with one of Asias finest health care systems. Malaria has been eradicated, and cholera is virtually nonexistent. There are five general hospitalsin Bandar Seri Begawan, Tutong, Kuala Belait, Bangar, and Seriaand there are numerous health clinics throughout the country. Education starts with preschool, followed by 6 years of primary education and up to 7 years of secondary education. Nine years of education are mandatory. Most of Bruneis college students attend universities and other institutions abroad, but approximately 3,669 (2008) study at the University of Brunei Darussalam. Opened in 1985, the university has a faculty of more than 300 instructors and is located on a sprawling campus overlooking the South China Sea. A second university, Sultan Sharif Ali Islamic University, was established in 2007 and offers programs such as Islamic Finance and Law. As of December 2009, the university had about 300 students. The official language is Malay, but English is widely understood and used in business. Other languages spoken are several Chinese dialects, Iban, and a number of native dialects. Islam is the official religion. While religious freedom is guaranteed under Bruneis constitution, non-Islamic faiths face a variety of restrictions, including confiscation of religious materials and prohibitions on religious teachings in private non-Islamic schools. Christmas and other non-Islamic holidays are widely recognized in Brunei and many faiths are permitted to be practiced in private. HISTORY Historians believe there was a forerunner to the present Brunei Sultanate, which the Chinese called Po-ni. Chinese and Arabic records indicate that this ancient trading kingdom existed at the mouth of the Brunei River as early as the seventh or eighth century A.D. This early kingdom was apparently conquered by the Sumatran Hindu Empire of Srivijaya in the early ninth century, which later controlled northern Borneo and the Philippines. It was subjugated briefly by the Java-based Majapahit Empire but soon regained its independence and once again rose to prominence. The Brunei Empire had its golden age from the 15th to the 17th centuries, when its control extended over the entire island of Borneo and north into the Philippines. Brunei was particularly powerful under the fifth sultan, Bolkiah (1473-1521), who was famed for his sea exploits and even briefly captured Manila; and under the ninth sultan, Hassan (1605-19), who fully developed an elaborate Royal Court structure, elements of which remain today. After Sultan Hassan, Brunei entered a period of decline due to internal battles over royal succession as well as the rising influences of European colonial powers in the region that, among other things, disrupted traditional trading patterns, destroying the economic base of Brunei and many other Southeast Asian sultanates. In 1839, the English adventurer James Brooke arrived in Borneo and helped the Sultan put down a rebellion. As a reward, he became governor and later Rajah of Sarawak in northwest Borneo and gradually expanded the territory under his control.
Meanwhile, the British North Borneo Company was expanding its control over territory in northeast Borneo. In 1888, Brunei became a protectorate of the British Government, retaining internal independence but with British control over external affairs. In 1906, Brunei accepted a further measure of British control when executive power was transferred to a British resident, who advised the ruler on all matters except those concerning local custom and religion. In 1959, a new constitution was written declaring Brunei a self-governing state, while its foreign affairs, security, and defense remained the responsibility of the United Kingdom. An attempt in 1962 to introduce a partially elected legislative body with limited powers was abandoned after the opposition political party, Parti Rakyat Brunei, launched an armed uprising, which the government put down with the help of British forces In the late 1950s and early 1960s, the government also resisted pressures to join neighboring Sabah and Sarawak in the newly formed Malaysia. The Sultan eventually decided that Brunei would remain an independent state. In 1967, Sultan Omar abdicated in favor of his eldest son, Hassanal Bolkiah, who became the 29th ruler. The former Sultan remained as Defense Minister and assumed the royal title Seri Begawan. In 1970, the national capital, Brunei Town, was renamed Bandar Seri Begawan in his honor. The Seri Begawan died in 1986. On January 4, 1979, Brunei and the United Kingdom signed a new treaty of friendship and cooperation. On January 1, 1984, Brunei Darussalam became a fully independent state. GOVERNMENT AND POLITICAL CONDITIONS Under Bruneis 1959 constitution, the Sultan is the head of state with full executive authority, including emergency powers since 1962. The Sultan is assisted and advised by five councils, which he appoints. A Council of Ministers, or cabinet, which currently consists of 14 members (including the Sultan himself), assists in the administration of the government. The Sultan presides over the cabinet as Prime Minister and also holds the positions of Minister of Defense and Minister of Finance. His son, the Crown Prince, serves as Senior Minister. One of the Sultans brothers, Prince Mohamed, serves as Minister of Foreign Affairs. Bruneis legal system is based on English common law, with an independent judiciary, a body of written common law judgments and statutes, and legislation enacted by the Sultan. The local magistrates courts try most cases. More serious cases go before the High Court, which sits for about 2 weeks every few months. Brunei has an arrangement with the United Kingdom whereby United Kingdom judges are appointed as the judges for Bruneis High Court and Court of Appeal. Final appeal can be made to the Judicial Committee of the Privy Council in London in civil but not criminal cases. Brunei also has a separate system of Islamic courts that apply Sharia law in family and other matters involving Muslims. The Government of Brunei assures continuing public support for the current form of government by providing economic benefits such as subsidized food, fuel, and housing; free education and medical
care; and low-interest loans for government employees. In 2004 the Sultan issued amendments to the constitution and re-introduced an appointed Legislative Council with minimal powers. Currently, four of the 29 seats on the Council are indirectly elected by village leaders. Bruneis economy is almost totally supported by exports of crude oil and natural gas. The government uses its earnings in part to build up its foreign reserves. The Brunei Investment Agency manages the bulk of the nations foreign investments, which are reported to have reached more than $30 billion. The countrys wealth, coupled with its membership in the United Nations, Association of Southeast Asian Nations (ASEAN), the Asia Pacific Economic Cooperation (APEC) forum, and the Organization of the Islamic Conference give it an influence in the world disproportionate to its size. Principal Government Officials Sultan and Yang di-Pertuan, Prime Minister, Minister of Defense, and Minister of FinanceSultan Hassanal Bolkiah Senior MinisterCrown Prince Billah Minister of Foreign AffairsPrince Mohamed Bolkiah Ambassador to the United StatesYusoff Hamid Ambassador to the United NationsLatif Tuah Brunei Darussalam maintains an embassy in the United States at 3520 International Court, NW, Washington, DC 20008; tel. 202-237-1838. ECONOMY Bruneis economy enjoyed moderate growth in the mid-2000s, primarily due to high world oil and gas prices. Recently, Bruneis growth has fallen sharply. The government estimated a growth rate of 1.9% for 2008. Brunei continues to have one of the lowest GDP growth rates of any ASEAN nation; however, Brunei is also ranked as having one of the highest rates of macroeconomic stability in the world and the highest in Asia. Bruneis conservative economic policies insulated it from much of the global financial crisis in 2008-2009. Brunei is the third-largest oil producer in Southeast Asia, averaging about 175,000 barrels a day in 2008. It also is the ninth-largest exporter of liquefied natural gas in the world. Like many oil producing countries, Bruneis economy has followed the swings of the world oil market. Economic growth has averaged around 2.8% in the 2000s, heavily dependent on oil and gas production. Liquefied natural gas output averages 895 million cubit feet/day. Overall oil production has declined in recent years, and growth rates have fallen significantly. Bruneis oil reserves are expected to last 25 years, and natural gas reserves 40 years. Brunei Shell Petroleum (BSP), a joint venture owned in equal shares by the Brunei Government and the Royal Dutch/Shell group of companies, is the chief oil and gas production company in Brunei. It also operates the countrys only refinery. BSP and four sister companiesincluding the liquefied
natural gas producing firm BLNGconstitute the largest employer in Brunei after the government. BSPs small refinery has a distillation capacity of 10,000 barrels per day. This satisfies domestic demand for most petroleum products. The French oil company Total (formerly ELF Aquitaine) became active in petroleum exploration in Brunei in the 1980s. The joint venture Total E&P Borneo BV currently produces approximately 35,000 barrels per day and 13% of Bruneis natural gas. In 2003, Malaysia disputed Brunei-awarded oil exploration concessions for offshore blocks J and K (Total and Shell respectively), which led to the Brunei licensees ceasing exploration activities. The two countries have stated they have reached a resolution to the conflict. Two on-shore blocks are being explored following awards to two consortiaone Canadian-led and the other an Australian-led operating consortium. Australia, Indonesia, and Korea were the largest customers for Bruneis oil exports, consuming more than 70% of Bruneis total crude exports. Other countries, including Japan and New Zealand, each purchased approximately 7% of Bruneis total crude exports (2008 Brunei Darussalam Key IndicatorsBDKI). Almost all of Bruneis natural gas is liquefied at Brunei Shells Liquefied Natural Gas (BLNG) plant, which opened in 1972 and is one of the largest LNG plants in the world. Some 90% of Bruneis LNG produced is sold to Japan under a long-term agreement renewed in 1993. According to BLNG, the agreement calls for Brunei to provide over 6 million tons of LNG per year to three Japanese utilities, namely to TEPCo, Tokyo Electric Power Co. (J.TER or 5001), Tokyo Gas Co. (J.TYG or 9531) and Osaka Gas Co. (J.OSG or 9532). The Japanese company, Mitsubishi, is a joint venture partner with Shell and the Brunei Government in Brunei LNG, Brunei Coldgas, and Brunei Shell Tankers, which together produce the LNG and supply it to Japan. Since 1995, Brunei has supplied 700,000 tons of LNG annually to the Korea Gas Corporation (KOGAS) as well. In the second quarter of 2008, total natural gas production reached 0.855 billion cubic feet per day. A small amount of natural gas is used for domestic power generation. Since 2001, Japan remains the dominant export market for natural gas. Brunei is the fourth-largest exporter of LNG in the world (according to the Brunei Economic Development Board) behind Indonesia, Malaysia, and Australia. The government sought in the past decade to diversify the economy with limited success. Oil and gas and government spending still account for most of Bruneis economic activity. Bruneis non-petroleum industries include agriculture, forestry, fishing, aquaculture, and banking. The garment-for-export industry has been shrinking since the United States eliminated its garment quota system at the end of 2004. However, with 75% of total garment exports valued at U.S. $66 million, the Unites States remains the largest export market for garments. The Brunei Economic Development Board (BEDB) announced plans in 2003 to use proven gas reserves to establish downstream industrial projects. In 2006, the Brunei Methanol Company, a joint venture between Petroleum Brunei, Mitsubishi, and Itochu, was established. Initial construction on a $400 million methanol plant, fed by natural gas, was started in 2007 and the plant is expected to come on line in 2010. The government has plans to build a power plant in the Sungai Liang region to power a proposed aluminum smelting plant that will
depend on foreign investors. A second major project depending on foreign investment is in the planning stage: a giant container hub at the Muara Port facilities. BEDB appointed a port operator, International Container Terminal Services Inc. (ICTSI) from the Philippines. The government regulates the immigration of foreign labor out of concern it might disrupt Bruneis society. Work permits for foreigners are issued only for short periods and must be continually renewed. Despite these restrictions, the estimated 100,000 foreign temporary residents of Brunei make up a significant portion of the work force. The government reported a work force of 188,800 in 2008, with a derived unemployment rate of 3.7% (BDSY). Oil and natural gas account for almost all exports. Since only a few products other than petroleum are produced locally, a wide variety of items must be imported. Nonetheless, Brunei has had a significant trade surplus throughout the past decade. Official statistics show Singapore, Malaysia, the United States, and China as the leading suppliers of imports in 2008. The United States was the third-largest supplier of imports to Brunei in 2008. Bruneis substantial foreign reserves are managed by the Brunei Investment Agency (BIA), an arm of the Ministry of Finance. BIAs guiding principle is to increase the real value of Bruneis foreign reserves while pursuing a diverse investment strategy, with holdings in the United States, Japan, Western Europe, and the Association of Southeast Asian Nations (ASEAN) countries. The government encourages foreign investment in Brunei. New enterprises that meet certain criteria can receive pioneer status, exempting profits from income tax for up to 5 years, depending on the amount of capital invested. The normal corporate income tax rate is 30%. There is no personal income tax or capital gains tax. However, foreign direct investment (FDI) outside the oil and gas industry remains limited. One of the governments priorities is to encourage the development of Brunei Malays as leaders of industry and commerce. There are no specific restrictions of foreign equity ownership, but local participation, both shared capital and management, is encouraged. Such participation helps when tendering for contracts with the government or Brunei Shell Petroleum. Companies in Brunei must either be incorporated locally or registered as a branch of a foreign company and must be registered with the Registrar of Companies. Public companies must have a minimum of seven shareholders. Private companies must have a minimum of two but not more than 50 shareholders. At least half of the directors in a company must be residents of Brunei. The government owns a cattle farm in Australia through which the countrys beef supplies are processed. At 2,262 square miles, this ranch is larger than Brunei itself. Eggs and chickens are largely produced locally, but most of Bruneis other food needs must be imported. Agriculture, aquaculture, and fisheries are among the industrial sectors that the government has selected for highest priority in its efforts to diversify the economy. The Philippines and China are currently involved with the largest
joint projects with the Government of Brunei to increase agriculture and fisheries production. American firms are consulting on aquaculture projects. Since 2002, the government has worked to develop Brunei as an international offshore financial center as well as a center for Islamic banking. Brunei is serviced by a large number of banks given its size. Islamic banking is growing, primarily in the Islamic bond (sukok) market. Offshore banking and business incorporation remains a small sector in the overall financial services market. Brunei is keen on the development of small and medium enterprises and has established a technology incubator to encourage the development of an information technology industry. Brunei has also promoted ecotourism to take advantage of the over 70% of Bruneis territory that remains primal tropical rainforest. Brunei is a participant and seeks to take a leadership role in the trilateral Heart of Borneo conservation initiative. While ecotourism is growing, the overall impact for economic diversification is limited. DEFENSE The Sultan is both Minister of Defense and Supreme Commander of the Armed Forces (RBAF). All infantry, navy, and air combat units are made up of volunteers. There are three infantry battalions equipped with armored reconnaissance vehicles and armored personnel carriers and supported by Rapier air defense missiles and a flotilla of coastal patrol vessels armed with surface-to-surface missiles. Brunei ordered three offshore patrol vessels from the U.K. but is reportedly seeking to sell these to a third country. The Royal Brunei Navy has ordered several Itjihad class patrol boats from German ship manufacturer Lurssen Werft. Brunei has a defense agreement with the United Kingdom, under which a British Armed Forces Ghurka battalion (1,500 men) is permanently stationed in Seria, near the center of Bruneis oil industry. The Royal Brunei Armed Forces (RBAF) has joint exercises, training programs, and other military cooperation with the United Kingdom and many other countries, including the United States. The United States and Brunei signed a memorandum of understanding (MOU) on defense cooperation in November 1994. The two countries conduct the annual military exercise Cooperation Afloat Readiness and Training (CARAT). RBAF joined a peacekeeping mission in Lebanon under the United Nations Interim Force (UNIFIL) and has been sending troops to the International Monitoring Team (IMT) in Mindanao to help safeguard the ceasefire between the Philippines Government and the Moro Islamic Liberation Front (MILF). Bruneis growing commitment to peacekeeping missions is in line with its defense white paper. FOREIGN RELATIONS Brunei joined the Association of Southeast Asian Nations (ASEAN) on January 7, 1984one week after resuming full independenceand gives its ASEAN membership the highest priority in its foreign relations. The chairmanship of ASEAN will rotate to Brunei in 2011. Brunei joined the UN in September 1984. It also is a member of the Organization of the Islamic Conference (OIC) and of the Asia-Pacific
Economic Cooperation (APEC) forum Brunei hosted the APEC Economic Leaders Meeting in November 2000 and the ASEAN Regional Forum (ARF) in July 2002. U.S.-BRUNEI RELATIONS Relations between the United States and Brunei date from the 1800s. On April 6, 1845, the USS Constitution visited Brunei. The two countries concluded a Treaty of Peace, Friendship, Commerce and Navigation in 1850, which remains in force today. The United States maintained a consulate in Brunei from 1865 to 1867. The United States welcomed Brunei Darussalams full independence from the United Kingdom on January 1, 1984, and opened an Embassy in Bandar Seri Begawan on that date. Brunei opened its embassy in Washington in March 1984. Bruneis armed forces engage in joint exercises, training programs, and other military cooperation with the United States. A memorandum of understanding on defense cooperation was signed on November 29, 1994. The Sultan visited Washington in December 2002 and visited the Pacific Command in Hawaii with Ambassador William E. Todd in November 2008. Principal U.S. Embassy Officials AmbassadorWilliam (Bill) Todd Deputy Chief of MissionJohn McIntyre Management OfficerMichael Lampel The U.S. Embassy in Bandar Seri Begawan is located on the third and fourth floors of the Teck Guan Plaza, at the corner of Jalan Sultan and Jalan MacArthur; tel: 673-2229670; fax: 673-2225293; email: amembassy_bsb@state.gov. A new U.S. Embassy is under construction in the diplomatic enclave at Jalan Kebangsaan and is expected to be completed by fall 2010. TRAVEL AND BUSINESS INFORMATION The U.S. Department of States Consular Information Program advises Americans traveling and residing abroad through Country Specific Information, Travel Alerts, and Travel Warnings. Country Specific Information exists for all countries and includes information on entry and exit requirements, currency regulations, health conditions, safety and security, crime, political disturbances, and the addresses of the U.S. embassies and consulates abroad. Travel Alerts are issued to disseminate information quickly about terrorist threats and other relatively short-term conditions overseas that pose significant risks to the security of American travelers. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country because the situation is dangerous or unstable. For the latest security information, Americans living and traveling abroad should regularly monitor the Departments Bureau of Consular Affairs Internet web site at http://www.travel.state.gov, where the current Worldwide Caution, Travel Alerts, and Travel Warnings can be found. Consular Affairs Publications, which contain information on obtaining passports and planning a safe trip abroad, are also available at http://www.travel.state.gov. For additional information on international travel, see
http://www.usa.gov/Citizen/Topics/Travel/International.shtml. The Department of State encourages all U.S. citizens traveling or residing abroad to register via the State Departments travel registration website or at the nearest U.S. embassy or consulate abroad. Registration will make your presence and whereabouts known in case it is necessary to contact you in an emergency and will enable you to receive up-to-date information on security conditions. Emergency information concerning Americans traveling abroad may be obtained by calling 1-888-4074747 toll free in the U.S. and Canada or the regular toll line 1-202-501-4444 for callers outside the U.S. and Canada. The National Passport Information Center (NPIC) is the U.S. Department of States single, centralized public contact center for U.S. passport information. Telephone: 1-877-4-USA-PPT (1-877-487-2778); TDD/TTY: 1-888-874-7793. Passport information is available 24 hours, 7 days a week. You may speak with a representative Monday-Friday, 8 a.m. to 10 p.m., Eastern Time, excluding federal holidays. Travelers can check the latest health information with the U.S. Centers for Disease Control and Prevention in Atlanta, Georgia. A hotline at 800-CDC-INFO (800-232-4636) and a web site at http://wwwn.cdc.gov/travel/default.aspx give the most recent health advisories, immunization recommendations or requirements, and advice on food and drinking water safety for regions and countries. The CDC publication Health Information for International Travel can be found at http://wwwn.cdc.gov/travel/contentYellowBook.aspx. Further Electronic Information Department of State Web Site. Available on the Internet at http://www.state.gov, the Department of State web site provides timely, global access to official U.S. foreign policy information, including Background Notes and daily press briefings along with the directory of key officers of Foreign Service posts and more. The Overseas Security Advisory Council (OSAC) provides security information and regional news that impact U.S. companies working abroad through its website http://www.osac.gov Export.gov provides a portal to all export-related assistance and market information offered by the federal government and provides trade leads, free export counseling, help with the export process, and more. STAT-USA/Internet, a service of the U.S. Department of Commerce, provides authoritative economic, business, and international trade information from the Federal government. The site includes current and historical trade-related releases, international market research, trade opportunities, and country analysis and provides access to the National Trade Data Bank.
Islamic Banking in Brunei and The Future Role of Centre for Islamic Banking, Finance and Management (CIBFM)
Hjh Salma Hj Abdul Latiff Introduction We have now come to the moment we have been waiting for, after such a long wait for that which we have been wanting to achieve or possess as conscious Muslims
These words form part of a royal address of His Majesty The Sultan and Yang Di Pertuan of Brunei Darussalam during the launching ceremony of the Islamic Bank of Brunei Berhad in 1993. It represents the very aspiration of the leader, the government and the people of Brunei Darussalam to have a bank whose method of operations blends with the teachings of Islam the official religion of Brunei Darussalam. Brunei Darussalam is an independent Islamic Sultanate situated on the northern coast of Borneo Island. With an area of 5,765 square kilometres, it is home to about 350,000 people. Its economy is dependent on the immense reserves of petroleum and natural gas. With such resources, it allows the people to enjoy one of the highest per capita incomes in Asia. The Sultanate of Brunei Darussalam goes back to the 14th century, and the presence of this long-established monarchy provides the enviable political stability for Brunei. The way of life in Brunei is very much encircled around its religion. The country has no nightclubs, no serving of alcohols in restaurants and public places, and the halalness of food is ensured by the relevant Government departments. With such features, the cardinal concept of Melayu Islam Beraja (MIB) or Malay Islam Monarchy is maintained and upheld. Therefore, it is not surprising that His Majesty The Sultan, decreed such
Faculty
of Business, Economics and Policy Studies, Universiti Brunei Darussalam.
words as quoted above, when he launched the official opening ceremony of the first Islamic bank. This bank would provide the people of Brunei a step-a giant step, towards living a life that adheres to the teaching of Shari[ah law. Islamic bank not only abolish the element of riba or interest, but also it provides a better socio-economic foundation for the country.
2. Bruneis Banking Industry

When banking first began in Brunei in 1935,1 with the establishment of a Post Office Savings bank, Islamic bank was non-existent. This establishment did not last due to the Japanese occupation in Brunei and they destroyed all the banks records. After the Second World War in the mid forties, Hong Kong and Shanghai Banking Corporation began to operate in Brunei and registered as a branch of a foreign bank. This was followed by Standard Chartered Bank in May 1958. During this time, due to lack of financial regulations, the banks' practices were solely based on English law. With the vast revenues emanating from the oil and gas production which fuelled the Brunei economy with rapid momentum, other regionally registered banks such as Malayan Banking (1960), United Malayan Banking Corporation (1963), and Overseas Union bank (1973) were attracted to joining the viable banking sector. Citibank made their presence in Brunei in 1971. Two local
banks, National Bank of Brunei Berhad (1964) and Island Development Bank (1980) were also set up to enlarge the banking industry. However, due to malpractices, National Bank of Brunei was closed down in mid 1980s. Since then the only other local conventional bank that has been established in Brunei is Baiduri Bank Berhad in 1994. The other newly established local banks are based on the Islamic Shari[ah method of operations. Currently, there are ten main banks operating in Brunei, three of which are Islamic based banks.
3. The Development of Islamic Banks

His Majesty The Sultan of Brunei initiated the formation of Islamic bank in Brunei. In his royal speech to the Islamic Religious Council Meeting held in September 1990, he stressed that the establishment of an Islamic bank is important because it is a fard kifayah obligation for each Muslim country and Negara Brunei Darussalam. This command initiated the beginning of many more meetings organised by the Islamic Religious Council which resulted in the setting up of a committee known as Formation of Islamic Bank Committee.2
Islamic Banking in Brunei and The Future Role of CIBFM
279 Given the natural setting of Brunei, a Malay, Muslim Monarchy, the introduction of Islamic banking is in fact a preferred method of operating banking transactions. The last two decades have witnessed rapid changes in the banking sector with the emergence of Islamic banking. As mentioned before, there are now three Islamic banks operating in Brunei. 3.1 Tabung Amanah Islam Brunei (TAIB) Bruneis first significant commitment to developing a complete Islamic system began in September 1991 with the official opening of Tabung Amanah Islam Brunei (TAIB).3 In his opening address, His Majesty stressed the importance of inculcating Islamic methods of banking. Spoken in Malay, he said, as translated in English.4 In the bands of Islamic believers, you will find expertise and wealth, including the expertise of executing Islamic banking rules. The Islamic people have established their own bank. This is evidence that Islamic banking rules can be executed if we wish to have it, an achievement which is considered impossible without the interest element. Such an achievement also confirms that Islam transcends in all time and place. (Di tangan umat Islam terdapat kemahiran dan kekayaan, termasuk kemahiran untuk melaksanakan hukm.Orang orang Islam sudah menubuhkan banknya sendiri, iaitu bukti jelas bahawa hokum Islam dapat melaksanakan apabila kita mahu, di mana perkara ini dahulunya dianggap mustahil jika tanpa riba.Kemudian di satu aspek yang lain, kejayaan seperti ini juga membuktikan bahawa ugama Islam adalah sesuai bagi setaip-tiap zaman dan tempat.) To further stressed the countrys commitment to Islamic banking and finance, His Majesty, in his royal address assured the people of Brunei that His Majestys Government will bear all the risk in the event of unexpected consequences. With the grace of Allah S.W.T., this has not proved necessary as the organisation has managed very well in administering the bank. TAIB is not a commercial bank but is an Islamic trust fund. It offers, to
the public, services that comprise of mainly savings and loans accounts. TAIB has been successful because of its concentration in this niche market of savings. The public has a variety of options to choose from when opening a savings account; ranging from accounts such as Akaun Simanja (for children below 12) to Akaun Belia (for youths) and accounts for adults. Another popular form of savings account is Tekad Haji Akaun which is especially for
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prospective pilgrims to save for the haj pilgrimage. Savings accounts are based either on al-mudarabah or al-wadi[ah. The loan account, which is mainly based on the principles of bay[ bithaman [ajil, is extended for the purchase of cars, pieces of land, building and renovation of houses, computers and others. To encourage the young Bruneians to aspire to higher educational levels, Akaun Galakan has been introduced and it extends loans for tertiary education. As an incentive, if the students succeed in getting excellent results, the Ministry of Education will pay a certain portion of the principal financing amount. More recently, TAIB has responded to the call of the local businessmen and started to offer loans for small and medium size business as well as corporates. Since savings accounts are liable for payment of zakat, TAIB ease the obligations of savers by ensuring that the appropriate zakat payments are deducted at source. TAIB financing to local businesses is normally for the purchase of assets such a machinery and equipments where a term loan is extended to cater for such financing. This is because TAIB, being a trust fund, does neither offer trade- financing facilities nor current account facilities. Currently, TAIB has five branches across Pan Brunei and two subsidiaries. One of the subsidiaries, Insuran Islam TAIB Sdn. Bhd. provides Takaful insurance services, and the other subsidiary, Darussalam Holdings, provides packages for those who wish to perform [umrah or haj. Both of these subsidiaries have been successful in their operations and they provide invaluable services to Bruneians. 3.2 The Islamic Bank of Brunei Berhad (IBB) Two years after establishing the trust fund, Brunei officially opened itsfirst fully-fledged Islamic commercial bank called The Islamic Bank of Brunei Berhad (IBB). The opening of this Bank was an event that the Government of Brunei and its people were awaiting for as reflected by the Sultans royal opening address (Baki, 2000). Alhamduillah, this dream has now come true from the blessing of our good intentions to comply with the demands of the shara which are very challengingPersonal Muslim customers will surely be more confident and relieved with the presence of this system of Islamic banking, as a way out of transgressions due to riba, apart from hoping for lawful benefits and profits from it all which are more barakah (blessed). Similarly, the departments and agencies of my government will be able to concentrate their financial businessmanagement in this system of Islamic banking as a method or step in practising Islamic regulations and hukm (rulings) within the administration and the financial business of the country.
IBB was initially incorporated on the 2nd July 1980. It was then known as Island Development Bank Berhad. In June 1986, with the appointment of local Directors to the Board and the reshuffle in management structure, the name was changed to International Bank of Brunei Berhad. Although there were management changes, it was still practising the conventional method of banking. The bank was renamed again in 1993 to its present name, when it started practising Islamic banking principles. The bank began concentrating on becoming a bank for the laymen of Brunei as well as a bank for the local businessmen. This was to assist the locals to use Islamic banking facilities and to deposit their funds in a bank that is 100 per cent owned by the Government. Although there were teething problems, the bank managed to successfully attract the public to use its facilities. Other than Muslims customers, the bank has also successfully attracted non-Muslims through its current accounts, based on al-mudarabah, which allow the customers to receive a share of the Banks profits. This feature is not available in the conventional banks where current account is basically an account that receives and pays on demand with no interest paid to the customer. The conversion to Islamic banking should not be based solely on replacing interest with profit sharing concept. It must also assist in achieving the socio-economic objectives of an Islamic society. To achieve this objective, IBB has participated in many community services where finance is needed, it also extends qard hasan facilities where loans are extended to those who are in grave need of funds without any charges whatsoever and period of repayment is very generous. Other than that, the bank is also in the process of opening a zakat counter and act as an [amil (agent) for easing the general public in fulfilling their obligations of paying zakat. IBB has 13 branches across Pan Brunei, it is currently the bank with the largest number of branches. This strong network across the country enables the bank to reach the public at large from the prominent businessmen in the main business centres to the farmers in the remotest places, such as the Temburong District. Each branch provides the complete range of commercial banking facilities from the basic saving accounts to the more sophisticated trade financing facilities. With a strong and experienced local workforce of 360 officers and staff, the bank has managed to keep abreastwith the developments of the banking industry internationally and the benefits arising from these developments are passed on to the customers. Besides being a commercial bank, IBB has invested in other related financial activities through its subsidiaries. Currently, there are four subsidiaries and each of them specialises in separate distinct activity as shown in Table - 1. Table 1: List of Subsidiaries as at 31st December 20025 Name of Subsidiary Principal Activity IBB Share of Ownership IBB Capital Asset Management Funds Management by 2 Equity Fund companies6
100% Saujana Sdn Bhd Aircraft leasing of 2 Boeing 767 to RBA on Al-Ijarah principle of financing. 52.5% IBB Transport Sdn. Bhd. Vehicle leasing of 21 fuel tankers to Brunei Shell Marketing based on AlIjarah 100% IBB Kredit Berhad Lease financing on the principle of Al-Ijarah Thumma Al Bay[ 100% 3.3 Islamic Development Bank of Brunei (IDBB) Islamic Development Bank Berhad (IDBB) was initially established as a conventional bank in March 1995. It was then known as the Development Bank of Brunei (DBB), a fully government owned banking institution. It was formed to take over the functions of the then Economic Planning Unit whose main task was to assist the local Bumiputras to setup businesses by extending specifically tailored loans to meet their individual business needs. In order to progress more actively and effectively in this direction, His Majesty ordered that the unit be transformed to a properly structured development bank so as to better meet the demands of the local businessmen.7 On 4th April 2000, The Sultan instructed the bank to operate on Islamic banking principles. The conversion required changes in transactions processing system, and accounting system. Malaysias experience and the available technology were studied. Appropriate software were chosen that accommodate the conversion of the extant system with the ease modification.
283 It took two months to install the new system for savings, current and deposit accounts, which comprise the main database for the Bank. Trainings were also arranged for all management and staff to understand the Islamic concepts of banking. Successfully conversion of IDBB as the second Islamic bank in Brunei was completed on 1st July 2000. A year after the conversion, in February 2001, IDBB opened its first subsidiary company, Takaful IDBB Sdn Bhd. The company is wholly owned by the Bank and acts as the insurance arm, providing a wide range of Islamic insurance products that cover for property and life, in conformity with Shari[ah principles, including General Takaful Business and Family Takaful Business. Now, about three years after the conversion, IDBB has introduced many new Islamic products such as Eze-Net Islamic Internet Banking and more recently the first Islamic credit card in Brunei.
4. Brunei Financial Regulatory Setup

The regulation of financial and banking sector in Brunei falls under the authority of the Ministry of Finance. Financial Institutions Division (FID), a division within the Ministry, has the task of supervising all banks and
financial institutions operating in the country, including Islamic banking. All banks in Brunei operate within the operational framework as regulated by the Banking Act of 1956. However, for the Islamic banks they also have to satisfy the regulatory framework set by the Islamic Banking Act Cap 186. The Brunei Currency Board (BCB)8 is also another division within the same Ministry. Other than issuing currency notes and coins, its other salient role is to control and maintain the circulation of Brunei currency whereby the external and liquid assets must exceed the statutory limits of 70 per cent and 30 per cent respectively9. A currency inter-changeability agreement exists between Brunei and Singapore that allows the currency to be interchangeable at par value. It must be noted that prior to the establishment of FID in 1993, banking matters were under the supervision of the currency board. Whilst this Board handles the local currency issues, the Brunei Investment Agency (BIA), another division established in 1995, is entrusted to handle the foreig investments and the countrys reserves.
5. Evaluation of the Performance of the Islamic Banks vis--vis Conventional Banks in Brunei
It is now about thirteen years since the first Islamic financial institution was established in Brunei. During this period we have witnessed a rapid growth as evident by the number of branches that have been opened throughout Pan Brunei, subsidiaries extending related banking and financial activities such as insurance, al-ijarah vehicle financing and also al-rahn pawning. Furthermore, the range of Islamic products offered by Islamic banks has also grown remarkably. Another perhaps more effective method of evaluating the performance of Islamic banks in Brunei is to analyse the
MINISTRY OF FINANCE FISCAL INTL AFFAIRS MONETARY BCB BUDGET FID BIFC
& POLICY
BUDGET & POLICY

REV. & POLICY STATE TENDER BOARD
ADMN
285 movement of assets and deposits shifting from the conventional banks to the Islamic banks. Such empirical study is useful as it is no longer a speculation since it is supported by key data. However, obtaining such data is difficult since not all statistics are available for in-depth studies. In the following analysis, I shall try to show trends in the movement of key variables, but would advise that in some cases the data is incomplete. 5.1 Total Deposits
Total deposits, in this context, comprise of current, fixed, savings accounts and other deposits. It does not include amount due to banks (within or outside Brunei) or other miscellaneous liabilities. The records for these diagrams are sourced from the respective Islamic banks annual reports, Brunei Darussalam Statistical Yearbook and reports from the Financial Institution Division in the Ministry of Finance. Detail breakdowns of deposits can be found from 1998 onwards, however records based from the Statistical Yearbook go as far back as 1991. Due to the constitution of TAIB, which is considered as a trust fund rather than a commercial bank, the figures from the Government sources normally exclude TAIB records. Firstly, looking at Islamic institutions, we see a steady increase of total deposits (Diagram 1). The diagram also shows that after the conversion IBB (1993) and IDBB (2000), there is no negative effect on total deposit; on the contrary, there is continuous upward trend for all the Islamic banks. There is a sharp increase in deposits in year 2000, which is not only contributed by IDBB conversion, but in fact largely due to a sharp increase in IBBs deposits by 73 per cent of its previous year deposit. This trend in deposits did not cut off at year-end but in fact, remained consistent into the end of the following year, hence we can assume the increase to be a long-term.
0 500 1000 1500 2000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 TAIB IBB IDBB Source: Compiled data from Annual Reports of Respective Banks
Diagram 1: Total Deposits of the three Islamic Institutions

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286 Secondly, we make comparisons of the Islamic banks total deposits visvis the conventional banks. Although there is a marked increasing trend in deposits of current, fixed and savings account for both Islamic and conventional banks (see Diagram 2), the level has stagnated in the last two years. The market share of the Islamic banks for deposits stood at around 25 per cent, but we must be reminded that this does not take into account TAIBs deposits.
0 2000 4000 6000 8000 10000 1992 1993 1994 1995
1996 1997 1998 1999 2000 2001 2002 Conventional Islamic Total
Source: Brunei Currency Board, and Ministry of Finance. Source: Brunei Currency Board, and Ministry of Finance.
Diagram 2: Breakdown of Conventional and Islamic Banks Total Deposits. Diagram 3: Market Share of Deposits of Islamic Banks (IBB & DBB)
Market Share 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Market Share
287
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 1993 1994 1995 1996 1997 1998 1999 Market Share Market Share(excl.TAIB)
TAIBs annual report is available up to year ended December 1999 therefore we can only ascertain its effect on the banking industry up to that year. Up to 1999, IDBB was then still a conventional bank and hence the Islamic banks share during the period of 1993 to1999 as shown in Diagram 4, comprised of TAIB and IBB. We highlight that with TAIB figure added on, the market share as at 1999 is a high 26 per cent. We can therefore deduce that if we can project and include TAIBs share of deposits into the diagram for 2002 (given that TAIB performance since 1999 to current has been steady), the current market share of total deposits would be higher than the current 25 per cent.
Sources : Brunei Currency Board, MoF, and Annual Reports of TAIB and IBB.
5.2 Total Equity and Reserve Total equity which comprise paid up capital, reserves and undistributed profit, measures the financial strength of the bank. For Trust Fund, this
would comprise of reserve carried forward, profit and dividend paid out. 5.2.1 TAIBs Reserve TAIB started with slight teething problems and then managed to overcome the difficulties and then continue to grow in strength up to the present time. With a Government fund of Brunei Dollar (BND)10 million for initial reserve fund, the trust fund is showing a high total reserve of BND26 million in 1999 and expected to be much higher than this figure by now. Dividend paid out during the 9-year period ending 31st December 1999, averaged at BND11.2 million per year, an impressive performance for a trust fund that began with some difficultThere is no current annual report at hand to analyse the present performance of the Trust Fund. However, with the increasing number of customers opening accounts in particular for Haj pilgrimage and no adverse reports, we can anticipate continuing progress and stronger performance for the future.
5.2.2 IBBs Equity

Issued capital of BND12 million was increased in 1993 by way of bonus share issued by capitalising its unappropriated share by BND24 million and by issuing 14 million ordinary shares for cash at a premium of BND1.00 per share by public offer. The authorised and issued share capital were also subdivided in 1993 from shares of BND10.00 each into shares of BND1.00 each, and an increase in the authorised share capital to BND100 million at BND1.00 each. The increases in both authorised and issued share capital was to support the growing activities of the bank in terms of rising deposits on one hand and affording of loans and advances on the other.
Diagram 5: TAIBs Reserve Funds (1991-1999)
Source: Compiled from TAIB Annual Reports 1991-1999 Source: Compiled from Annual Reports of IBB. No info for 1995 to 1997
Diagram 6:ies.
In 2002, the bank boosts a high total equity of BND162 million which far exceeds its extant authorised capital and will facilitate further growth in terms of expanding its branches or creating new subsidiaries to fuel the countrys financial activities. 5.2.3 IDBBs Equity IDBB started off as a conventional bank in March1995, with an authorised share capital of BND400 million. As with most organisations it started with a loss, of slightly more than half a million, but immediately bounced into profit the following year. Since then the Bank has strengthened year after year. The gradual increase of issued share capital from BND139 million to its present BND271 million indicates the countrys commitment to assist businessmen in undertaking developments for economic growth. Overall, all the Islamic banks have performed remarkably well with the shareholders funds strengthening year after year. This facilitates the banks to invest further in new subsidiaries and new products. Islamic banks have to shift its lending direction to productive projects such as agriculture, construction, general commerce and professional services. Islamic banks have to be active in lending to these sectors which will assist the Brunei Government in its effort to diversify Brunei economy and facilitate local businessmen to venture into these sectors. Islamic banks have maintained a close scrutiny on the provisions of bad and doubtful debts. The policies practised by the banks for provision of debts
are similar to international standards. Loans are divided into substandard, doubtful and loss provisions. High provisions of 55 to 100 per cent are made on doubtful and loss loans after taking into account all realisable collaterals to back the lending. Currently, the provision for bad debts as a percentage of total loans and advances for the Islamic banks group is in single digit. This is a good indication of cautious lending and the banks must continue to practise due care to ensure that the provision for bad debts do not turn to double digits. Stringent credit lending policies and firm covenants must continue to be the cornerstone of lending to ensure that the lending portfolio comprises of performing loans. 5.4 Total Assets Total assets comprise of cash, placements and balance with banks in and outside of Brunei, loans and advances, investments and other miscellaneous assets. Although we have the information of banks assets from 1991, the subdivision between Islamic and conventional banks is only available from 1998 to 2002 as shown in Diagram 10. Overall banks assets increased by 27 per cent between 1998 and 2002, but Islamic banks growth rate of total assets during the same period had been a remarkable 210 per cent. In 2000-2002, the trend in the conventional banks as a group shrank slightly by 12 per cent. A plausible reason is IDBBs conversion to Islamic bank in 2000. However, we must be again reminded that the above figures, which are derived from Government Statistics, excludes TAIB, which, in fact, if included, will raise the figures for Islamic banks even higher than what is shown above. However, although total supply of funds is growing, a large proportion of the funds are parked outside of Brunei, in overseas banks (see Diagram 11). This may indicates either lack of lucrative local investments or the more attractive investment rates offered by banks outside Brunei or both. Most banks in Brunei parked their overnight surplus funds in neighbouring country Singapore to gain from interest given for overnight deposits. 5.5 Profitability Ratio Return on Equity (ROE)
Source: IBB, compiled from Annual Reports Source: IDBB, compiled from Annual Reports Source: Brunei Currency Board, Financial Institution Division, Ministry of Finance.
Diagram 11: Percentage of Amount due from Banks Outside over Total Assets from 1991 to 2001. Diagram 12:
The above diagrams traced the ROE of both IBB and IDBB. ROE is measured by taking the profit after taxation and zakat over ordinary share capital and reserves. The amount of zakat is calculated based on a set formula on net profit before income tax to comply with the principles of Shari[ah. IBB, after 10 years of operating as an Islamic bank has maintained an upward trend in ROE. The average rate of return on equity for the period 1997-2001 for IBB was 9.5 per cent. The benchmark for rate of return on equity for the Top 1000 banks in the world was 15.08 per cent during 19941998.12 Iqbal (2000)13 conducted a survey on 12 Islamic banks operating in various Islamic countries and stated that only six out of the twelve Islamic banks scored higher rates than 15.05 per cent. Although the period is not the same, it gives us an objective benchmark of IBB performance on profitability. The rate of return on equity confirms that IBB has built the foundation for going forward with success for the second ten years. IDBB has also performed well given that it only had two years of
experience as an Islamic bank. Similar to IBB, the bank has had its fair share of teething problems. In 2001, IDBB earnings from operating income after tax was recorded at BND10 million. As a new Islamic bank, IDBB is building a strong footing in Islamic banking and will progressively achieve positive growth. As for TAIB, it is not plausible to apply the rate of return on equity for measuring its profitability. There are a couple of reasons to this; firstly, as stated in their annual report, TAIB does not pay zakat because the Syariah Advisory Council is of the opinion that it is not subject to zakat, and secondly the trust fund is funded by reserve which is the cumulative effect of income over expenses over the years of operations. Nevertheless, based on its latest available audited accounts of 1999, the trust fund reported a profit of BND24 million. If we were to date back to its humble beginning, the trust fund started off in 1991 with BND 10 million as opposed to a reserve of BND26 million in 1999.
6. The Next Step Forward

Overall, Islamic banks have proved to be successful and active participators of the banking industry. Their presence in the industry has grown in strength year after year since initiation. The analysis of their financial performance has indicated that Islamic banks can be serious competitors to the conventional banks.
Hajjah Salma
294 However, the next step forward is very important in terms of sustainability. What would be the right direction for Islamic banks to adopt? This depends on how the Government intends to expand its economic activities. The Government of His Majesty has many times expressed its plan to make Brunei a financial hub for Islamic banks. This intention was first mooted in the Government's Fifth National Plan. There are strong incentives for the investors to invest in Brunei, for example, there is no restriction on importing capital from any country, or on overseas remittances of capital or profit. Non-resident accounts can be maintained and there is no restriction on borrowing by non-residents. Furthermore, over the last fifteen years, Brunei Darussalam has poised itself as a Muslim country, where Muslims around the world can expect that activities conducted are adhered to Islamic principles, from the food and drink that they consume to social gatherings and business dealings. This in itself presents a competitive edge. However, the present level of development of Islamic finance in Brunei is not sufficient to attract the investors since it does not offer any new Islamic instruments nor Brunei Darussalam has an Islamic financial market to facilitate Islamic investments. Brunei Darussalam has to develop a financial intermediary market for the transaction of Islamic bonds and other money market instruments. An example would be to initiate sukuk al-ijarah (leasing bonds) or sukuk al-mudarabah bonds. Sukuk al-ijarah can be used for the purchase of large capital assets such as oil tankers or aircrafts where the bond is asset-backed and a fixed income stream is established through a master ijarah agreement via a SPV. Sukuk al-mudarabah is another bond facility where the Government or venture capitalist may issue revenue bonds to finance certain Government projects, for example, the construction of a highway. The income is derived
from the fees collected from users of the facility, for example, toll fees can be steadily collected from the users of the highway. However, to open up a bond market, several measures have to be undertaken to lay the groundwork. To develop an Islamic inter-bank money market for buying and selling of Islamic financial instruments would require a more sophisticated financial market environment with legislation to form the legal framework and financial intermediaries to support and undertake the transactions. The vision in setting up an Islamic inter-bank money market by linking the Islamic institutions and the instruments will give Brunei Darussalam the depth to the Islamic financial system.
295 Another pre-requisite of Islamic banking and finance is capacity building. To design, develop and implement Islamic financial instruments, Brunei Darussalam requires the necessary skill and manpower. Here, the Centre for Islamic Banking, Finance and Management (CIBFM) can play an important role in the development of Islamic banking in Brunei Darussalam.
7. The Centre for Islamic Banking, Finance and Management (CIBFM)

The establishment of the Centre for Islamic Banking, Finance and Management (CIBFM), was first initiated in early 2000. The previous ViceChancellor, Allahyarham Dato Paduka Seri Setia Professor Dr. Hj Awang Mahmud Saedon Bin Haji Othman, showed great enthusiasm in setting up of this Centre and together with the Ministry of Finance began to form the initial its idea. This enthusiasm is very much shared by the present ViceChancellor, Dr Haji Ismail Bin Duraman who has continued in supporting plans to develop the Centre by ensuring that the groundwork for the Centre is progressing as scheduled. The mission statement of the Centre is to provide necessary support for Brunei Darussalam to create, propagate and maintain a unique Islamic foundation for banking, finance and management operations. This mission is in line with the Universitys aspiration to not only play an academic role but more importantly, to assist the Government in their national development plans. The Centre is considered an important endeavour for the University as well as for the country because of the goals that it aims to fulfil, which are: To provide a foundation of learning for the people of Brunei in their ongoing pursuit for the establishment of an Islamic financial and banking hub, regionally and internationally; To provide the necessary infrastructure for Brunei to propagate and maintain Islamic banking, finance and management institutions; To act as a centre for the implementation of Islamic knowledge by working in coalition with the Government Ministries as well as with the banking and business communities. The Centre will be under the umbrella of the University in the same capacity as other faculties. It will be autonomous in so far as managing its own activities, but the monitoring of academic standards and the awarding of certificates are centralised at the University senate level. Educational foundation In order to provide opportunities for learning, the Centre has initiated several structured programs at various levels which will require the approval of the University academic planning committee. However, to set the learning in progress, a minor in Islamic banking and finance has been introduced two
years ago, offering the students at undergraduate and post-graduate levels the opportunity to learn Islamic business knowledge such as Islamic accounting, Islamic management ethics, Islamic business and finance, Islamic jurisprudence, Islamic transactions and many others. This program is currently being set up as part of the specialised and minor program offered by the Department of Business Studies, one of the three departments which formed the Faculty of Business, Economics and Policy Studies. Other departments and faculties within the University are also offering Islamic knowledge, and the Centre will pull together the teachings relating to business, management and banking under the roof of the Centre to gain from the synergy of combined knowledge. Other than offering programs to undergraduate and postgraduate levels to University students, the Centre has the mission to provide short courses and programs to those outside the Universitys community. These target groups are the bankers, businessmen, young professionals and the interested public at large in Brunei and abroad, who wish to pursue knowledge in Islamic banking, business and management studies. In order to ensure the practical relevance of the course, the Centre will ensure the participations of the professionals and experienced businessmen and bankers to provide valuable practical knowledge and information of the business world. Resource Unit The Centre will be equipped with a resource unit which will be accessible to University students as well as the business and public at large. The plan is to equip the resource unit with the latest technology in terms of accessing information via internet and other electronic devices. This would allow networking with other Islamic centres and agencies as well as the banking and business communities. The resource unit will be housing books, journals and magazines from publications over the world. The Centre would also plan to get the collaboration of the banks in Brunei to participate in maintaining the resource unit as one of the best resource centres in the region. Forums, conferences and seminars This Centre has established relationships with many Universities from abroad as well as organisations that are promoting Islamic knowledge. The
297 networking will set the foundation for the Centre to organise conferences and seminars by securing eminent speakers and practitioners. A good example is this conference itself where Universiti Brunei Darussalam and Islamic Development Bank, Jeddah join hands to make this meeting possible. The gatherings of eminent scholars and practitioners such as this is very rare and its value is immeasurable it is a meeting of minds and Insha Allah the experienced and the new-comers of this discipline will intermingle and learn and nourish one another. Research Centre Perhaps one of the most important roles that the Centre will play is to promote research work in the area of Islamic banking, finance and management. It is suggested that banks, in particular the Islamic banks, can play a role here which will help in developing the Islamic financial market. As mentioned earlier, Brunei needs to create a more sophisticated financial centre. Endowment from banks to recruit researchers in this area will be one of the first stepping stones towards this direction. Government departments such as Ministry of Finance can also benefit in this area by financing
researchers to work in depth on certain projects that can assist in implementing Islamic financial instruments. Strategic partners with Brunei banking and business community Currently, banks and business organisations look to the neighbouring countries for the training of their human resources which is costly. With the presence of the Centre, banks and business organisations can discuss their training needs and custom made courses can be designed to close the knowledge gaps of each individual organisation. Working as strategic partners with these organisations is a win-win situation, because not only will the organisation incur less expenses, the Centre will be able to understand the problems encountered by the organisations and assist in reaching solutions. Publications A long-term objective is also hopes to have the Centre take lead in publicity in the area of its interest. We expect students and researchers to write papers and project assignments that are of quality and that are useful for public consumption. For the Centre to achieve its objectives as listed above, it would require a staff of high calibre that is willing not only to serve the Universitys community but also to work closely with the public. At the initial stage, the Centre will work with adjunct lecturers from various other Faculties, in particular the Faculty of Business, Economics and Policy Studies and the Sultan Haji Omar Ali Saifuddien Institute of Islamic Studies Lecturers from these faculties will be required to assist with the teaching requirements. In the long run, the Centre will have its own permanent staff to support its activities. Currently there are several permanent lecturers who have been recruited for the Centre. However, these lecturers will be able to contribute most effectively on their return after obtaining a doctorate level qualification. In the meantime, the Centre will depend on lecturers that will be recruited from abroad, those who are well acknowledged in their respective fields of specialisation. Researches will also be given teaching responsibilities and to transfer their specialised area of knowledge to the students. Since the Centre will be running in full force in 2006, a complete team of specialised lecturers would be on hand to provide the necessary support as required by the Centre.
8. Conclusion
This paper documents the progress that Islamic banking has achieved in Brunei since its introduction twelve years ago. It presents a detail analysis of the financial performance of the Islamic banks of which it confirms that the first step in the development of Islamic banking has taken place in Brunei Darussalam. The paper further states that the country is ready to take the next giant step; which is for the country to develop an international Islamic financial market. One of the prerequisites needed to carry out such a noble plan is to ensure that the country develops its capacity building requirement so as to put in place the skills and knowledge needed for creating and implementing a more sophisticated financial environment. In this respect, the Centre will contribute and play an important role of ensuring that skills and knowledge are acquired by the people of Brunei Darussalam to support the Governments National Development Plan of making the country an Islamic financial hub. However, other prerequisites such as legal framework, standardising Shari[ah compliance regulations, introducing new Islamic financial instruments, establishing rating agencies and other infrastructures are essential to turn this into reality. Islamic banking is rapidly growing in Brunei Darussalam. Since the
introduction of Islamic banking, the banking industry has experienced tremendous change. Based on the principle of fard kifayah (religious obligations), we have to ensure that Islamic banking continues to grow. This is to sustain its existence and to present itself as a proven alternative to conventional banking. To keep the momentum going, the next giant step as mentioned above must be taken seriously. Twelve years ago, we never
299 thought it possible for Islamic banks to thrive and prosper. Are we now ready for the next step? To conclude this paper, it would be most appropriate to quote the royal address made by His Majesty during the launching ceremony of the Islamic Bank of Brunei, in 1993: The system of Islamic finance that we are striving at is a vision and a far-reaching mission which extends beyond the demands of this life. It will Insha Allah be inherited by our descendants. May it last and remain strong and successful so as to stand as proof in front of Allah that we have indeed been steadfast and sincere in carrying out Islamic regulations in Negara Brunei Darussalam.
Notes
BRUNEI'S rules on Islamic banking and takaful are now on par with international standards after the government issued two orders to govern the sector. Banking and takaful insurance players welcomed the rules, but they also voiced concerns about some of the provisions. "We haven't got any Islamic takaful and banking orders yet, so this is the first one which we have introduced to international standards; so now businesses can come in on international standards," said Permanent Secretary of the Ministry of Finance Dato Paduka Hj Ali Apong, during a briefing for industry players yesterday on the Islamic banking and takaful orders. Badaruddin Hj Kudil, Takaful IBB Islamic Insurance's head of general takaful, voiced concern over a requirement to split up the registration for general and family takaful businesses. "Currently, we are a composite company where one company operates both life and general insurance, but from the way we read it, now we have to split it up," he said. "Our early perceptions regarding the registration is to require two capitals for both general and family takaful. As far as the requirement of the capital is concerned, we have no issue, but is (the rule requiring registration) .... for two separate companies for life and general really necessary? Because that will reduce good capital return to the operators, as far as practicality is concerned," he said. Because of this rule, Badaruddin said the total premium might not be enough to give a good return for multiple companies. "The other thing is resources human resources for example two separate companies will only create and increase the operating cost," he said. Shazali Sulaiman, a partner at the KPMG auditing firm, raised concern whether Brunei has experts in Islamic finance and takaful.
"Where syariah is concerned, we have Islamic scholars who are scholars on Islamic issues, but they may not necessarily have a financial background, so I think the scholars should also include practitioners as well. With the shortage of people in the industry, most organisations will be using the same resources," he said. On the differences between the conventional banking order and the Islamic banking order, Shazali said that the provisions are similar to the banking order, relating to the liquidity requirement, the capital deposit requirement, and the head office capital requirement, and so on. "The only thing lenient is that if you are a foreign bank, and you have a branch here, you only need to have $500 million in assets for your head office rather than $1 billion," he said. He added that for everything else, the capital is still $30 million and that has been backed up by certain assets of the company. "It's not anything different from the conventional banking order, but it concentrates more on Islamic issues where syariah is concerned," he said. Still, the players welcomed the rules, saying their issuance is a good step towards developing Brunei as a financial hub. "I think the Islamic banking order can set some direction to where the Islamic banking side is moving. What I can see is that the Islamic banking order is an opportunity to open the Islamic banking industry in Brunei for local companies who may be established companies, or for foreign companies with Islamic banking to come here," said Shazali. "In the Islamic world, there's always a lot of differences in opinions and products, sukuk may be syariah-compliant in this part of the world, but certain sukuk may not be compliant in the Middle East because of terminologies and different products. I think the important thing is for Islamic banks to keep the principles of Islamic banking and to not try imitate commercial banking by going into derivatives, and not go into exotic products and try to Islamise them just to compete with commercial banks," added Shazali. "Overall for the takaful order ... we ourselves are eager to have a local industry to be regulated and have been anticipating it for quite some time, and now with this new order, hopefully there will be a more level playing field that will be practiced by both Islamic and conventional insurance companies," said Badaruddin. Under the rules, players are given six months to register. They also have until March 2009 to submit documents regarding the deposit and capital requirements. The gazetted takaful order also mandated players to have surplus of assets over liabilities of not less than 20 per cent, a deposit of minimum $1 million for carrying on a general takaful business and a minimum of $1 million for a takaful operator carrying on a family takaful business. It also stated that the registered takaful operator shall pay $20,000 for registration of a family takaful business and $20,000 for registration of a general takaful. The gazetted Islamic banking order requires Brunei-incorporated Islamic banks to have no less than $100 million in issued and paid-up capital, while foreign Islamic banking players are required to have $500 million in issued and paid-up capital and $30 million worth of assets with respect to their Brunei operations. The Brunei Times
Islamic banking here to stay

Dzikrullah W Pramudya BANDAR SERI BEGAWAN Tuesday, April 17, 2007 b>Self-criticism needed while hosting the Finance Conference "ISLAMIC banking is here to stay, is an opportunity rather than a threat, and has an exciting future. Such a development should be welcomed and facilitated, and not be hindered or suppressed." Professor Rodney Wilson wrote that in his article "The West Should Promote Islamic Banking" in Los Angeles-based Islamica Magazine. He is Director of Postgraduate Studies at Durham University's Institute for Middle Eastern and Islamic Studies, co-editor of book "The Politics of Islamic Finance" and co-author of "Islamic Economics: A Short History". For various reasons, Western scholars and practitioners on the financial and banking sectors, like Wilson, believe the Islamic finance is speeding on a highway. In Brunei, starting from today until the 19th of April, we will see just how great the speed is when the First International Conference on Inclusive Financial Sector Development opens. Taking as its theme "Enhancing Islamic financial services for micro and medium sized enterprises (MMEs)", the organisers appear to have been working hard to avoid the conference being turned into a mere parade of scientific papers whose fate will be relegated to the shelves after the closing ceremony. How can Brunei, especially its financial and banking practitioners as well as the consumers, best benefit from the conference jointly organised by Universiti Brunei Darussalam and the Jeddah-based Islamic Research and Training Institute (IRTI)? First of all, we'd like to see from the conference an endorsement for more dynamic financial and banking sectors in this country as well as in this region. The following are seven issues that we hope would not only be addressed but also followed-up with real actions. On consumers-led economy: We are getting tired of reading remarks that Brunei has poor entrepreneurship, and that the economy will not last when consumers have to carry it on their shoulders for too long. We are hoping the conference will result in new ideas that spark Brunei's motivation to advance from its current's stage of government-pampered economy and start building its economy in the real sense. On usury-based banking: Even though Brunei is an Islamic country, Islamic banking and finance are the minority services amongst the nine banks and four finance companies that operate in this country.
Bank Islam Brunei Darussalam (BIBD) is the only shariah-based bank. Six of the banks are foreign usury-based banks including Citibank and Standard Chartered. This is an indication that many Bruneian Muslims are too comfortable depending on conventional (usury-based) financial and banking institutions when in fact the rationale for doing so is in fact over; the establishment of syariah-based banking has effectively erased the emergency status (darurah) that allowed the use of usury-based banking. This conference should enlighten as many people as possible that for an Islamic community, deals with usury-based financial institutions endanger the nation today and tomorrow. The conference, however, should also expose the benefits to be gained if usury-based banks are converted into a shariah system. On Brunei's dream: Bruneian senior officials have expressed hopes to develop the country into a shariah financial and banking centre in this region. Strong shariah-based Small and Medium enterprises must be turned into the building-blocks for the country to achieve that dream. This conference has the opportunity to explain whether such a hope is a wishful thinking or a realistic option, and to give advice on what strategies that Bruneian small and medium enterprises can adopt to compete (in fastabiqul khairaat) with Malaysia and Indonesia which have far bigger markets. On self-assessment: The conference is also a good opportunity for consumers to assess our shariah-based institutions such as BIBD and Tabung Amanah Islam Brunei (TAIB) on what they have done so far to stimulate the growth of people's economy, and what follow-ups can be implemented. On the government's role: The Brunei Darussalam government obviously has been very supportive to the development of shariah economic and financial services. This conference can provide the yardstick with which the country can measure the country has made good use of that support, especially through these papers. Unfortunately, there are two crucial issues related to Islamic finance and banking that are not being specifically covered by any paper. These are the alternative currency and the hegemony of fractional reserve banking. Parallel with the constant decline in the US dollar, the use of gold-dinar as an alternative and stronger currency is increasingly becoming popular in several countries. SMEs can be the most realistic starting point to build the basis for gold-dinar use. As for fractional reserve banking, it has always been the umbrella for usury-based banking system. To some extent, the development of Islamic finance and banking must face the risk of being contaminated by the fractional reserve banking.
"O you who believe! Enter totally in Isla{aci}m (by obeying all the rules and regulations of the Isla{aci}mic religion) and follow not the footsteps of Syaita{aci}n (Satan). Verily! He is to you a plain enemy." (translation of surah Al-Baqarah: 208) The Brunei Times 19 april 2008 BRUNEI'S banking sector could get even more crowded if the government heeds the calls of some of the industry's leaders to lift restrictions on foreign participation. Greater competition could trigger much needed consolidation. Currently there are eight conventional banks and one Islamic bank operating directly in the Brunei marketplace, competing for the custom of just over 350,000 potential clients. There are also four finance companies that offer some loan and bank-related services. However, existing restrictions limit banking activity, including the entry of international Islamic financial institutions into the market. For the past two years, the state has been deliberating on amending the regulations governing the sector, with a view to opening up the industry to more competition and broadening the base of the existing Islamic finance market. Though only two of Brunei's financial institutions, Bank Islam Brunei Darussalam (BIBD) and the Brunei Islamic Trust Fund (TAIB), work exclusively in the Islamic services sector of the industry, a recent report by the Moody's investor service said that Islamic banking has achieved relatively high market penetration in the sultanate. It is estimated that Brunei's Islamic finance sector accounts for around one third of bank assets and more than 25 per cent of deposits while providing nearly 60 per cent of total financing. Despite that, the report, released on April 14, commented that there needed to be more support from regulators if Islamic financing was to flourish in Brunei and the rest of East Asia. The report cited Malaysia, where it said nearly 30 years of reforms had greatly assisted to put in place the necessary legal and regulatory framework and institutions for the industry. It is this experience that Brunei's bankers want to see implemented in their own country. At present, Brunei offers four types of banking licences: full international banking, international investment banking, international Islamic banking and a restricted banking licence. While having allowed international commercial banks to operate, the Islamic sector of the industry is restricted to local companies only. One of the key planks of the regulatory reform package being considered by the government is opening up the market to international Islamic finance institutions. If Brunei's banking sector is to develop into a regional financial hub, there needs to be flexibility in the regulations that control its activities and greater competition that would come through allowing the entrance of international players, said Tareq Muhmood, the chief executive officer at HSBC Brunei. "If the regulations are very restrictive in terms of what it allows and what it does not allow in the operations then it would restrict the ability for the industry to grow," Muhmood told local press on April 15. While flexibility is essential to foster the Islamic banking industry in Brunei, there is also the need for some degree of protection, argues Barudin Kudil, Takaful
IBB Islamic Insurance's head of general takaful.The views of these two senior banking officials in part highlight the dilemma faced by the government in drafting its new regulations: while trying to bolster competition and strengthen the sector the state does not want to see the domestic banks swamped by stronger newcomers from overseas. One suggestion on how Brunei's Islamic financers can both corner a section of the local banking market and directly fulfil the tenets of their code of financing came from management and business development consultant Alfred Yong Foh Sen. According to him, there should be a greater emphasis by Islamic banks on supporting small businesses. Until the government does promulgate its new banking regulations, Brunei's Islamic finance sector can either stay in its comfort zone or prepare for the day when it will be challenged on its home turf.

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Islamic banks merge

1 History 2 Organization of the BCMB 3 References 4 External links

Organization of the BCMB

Background Note: Brunei

of Business, Economics and Policy Studies, Universiti Brunei Darussalam.

2. Bruneis Banking Industry

3. The Development of Islamic Banks

4. Brunei Financial Regulatory Setup

BUDGET & POLICY

Islamic Banking in Brunei and The Future Role of CIBFM

Diagram 1: Total Deposits of the three Islamic Institutions

Islamic Banking in Brunei and The Future Role of CIBFM

5.2.2 IBBs Equity

6. The Next Step Forward

7. The Centre for Islamic Banking, Finance and Management (CIBFM)

Islamic banking here to stay

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