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Brunei’s blueprint for the future of banking

Interview - October 26, 2017

Mr. Yusof bin Hj Abd Rahman, Managing Director of the Monetary Authority of Brunei Darussalam’s discusses the roadmap for the financial sector, which will be key to the success of the Brunei’s Wawasan 2035 development plan


Domestic services and financial sector in Brunei grew by 8.8 percent in FY2016 amid a challenging global environment. What are your expectations on the growth of the financial sector in the years to come?

With the launch of launched The Financial Sector Blueprint, the financial industry is expected to grow by an average of 7 percent annually. We are expecting bigger growth in the capital market with the increasing activities in fund management, the establishment of a stock exchange as well as expansion of the back-office services. We are also working towards participating in the ASEAN Collective Investment Scheme and Asian Region Fund Passporting where we need to first address some legal and regulatory issues.

On the insurance and takaful side, as mentioned in the blueprint, we have room to expand in the life and investment-linked insurance as well as encouraging industries to adopt technology to increase the insurance/takaful penetration rate. The banking industry will still be the biggest segment of the financial industry and their focus in the next five years will be to increase corporate lending, FDI loans and loans for micro, small and medium enterprises.


The AMBD launched The Financial Sector Blueprint (2016-2025) to guide the development of Brunei Darussalam's financial sector during the next decade and sets out the strategic framework within which Autoriti Monetari Brunei Darussalam will be working with other ministries and stakeholders to reach the objectives of Wawasan 2035, the nation’s development plan. What are the main pillars under the economic blueprint that intend to transform Brunei Darussalam into a diversified, sustainable and dynamic economy? How does the Financial Sector Blueprint fit in Wawasan 2035?

Wawasan 2035 aspires that by 2035, Brunei Darussalam develops into a nation with a dynamic and sustainable economy with income per capita within the top ten countries in the world. In order to achieve this objective, ten development clusters have been identified in a bid to diversify away from the oil and gas sector, including financial services.

The Brunei Darussalam Financial Sector Blueprint 2016-2025 (FSBP) outlines the framework and measures to develop the financial services sector to enable the fulfilment of Wawasan 2035. The goal is to successfully develop the country's financial services sector and compete with developed regional competitors. By 2035, we would like to see the financial sector contribute to at least 8 percent of the national Gross Domestic Product.

The FSBP identifies five key pillars that form critical components of a sustainable financial ecosystem namely: Monetary and Financial Stability; Competitive and Innovative Financial Institutions and Services; Robust and Modern Infrastructure; Enhanced International Integration; and Human Capital Development.

Monetary and financial stability (Pillar 1) is a prerequisite for strong economic and financial development. Without such stability, there cannot be the confidence needed to sustain new investment and business ventures, and the opportunities needed to sustainably grow the financial sector. Plans include developing an efficient interbank money market that will be securitised by highly rated bonds or sukuk; continuously reviewing and developing the legal and regulatory framework to ensure they are on par with international standards; moving towards risk-based supervision; and putting an increased focus on credit and underwriting risk management.

To grow in an intensely competitive environment, Brunei Darussalam's financial institutions and services must be innovative and responsive to the changing trends in the financial sector (Pillar 2). For example, AMBD is working with the industry to grow life insurance and family Takaful, taking into account technological innovation and its potential to shape the future of insurance. The establishment of a securities exchange is also expected to catalyse economic growth and business expansion through enabling Bruneian businesses alternative funding routes. Another area that has potential for growth is Islamic fund management and the enhanced provision of Syariah-compliant products. AMBD is keen to promote investing along a Sustainable, Responsible and Impact (SRI) criteria, which shares many similarities with Syariah-compliant investments.

The existence of a robust and modern infrastructure is an integral part of a financial ecosystem (Pillar 3). To that end, as part of the National Payment and Settlement Systems Project, AMBD has implemented the Real Time Gross Settlement (RTGS) system for high-valued electronic transfers between banks in November 2014, Automated Clearing House (ACH) system for automated cheque processing in May 2016 and the introduction of the Direct Credit in the ACH system in March 2017 to allow electronic transfer of multiple low value payments. In May this year, AMBD implemented the Central Securities Depository (CSD) system to automate securities and depository for Government Sukuk and other potential securities that are registered in Brunei Darussalam. The next innovative phase is developing plans and policies for an interoperable market infrastructure for retail payments. This may include payment cards, internet banking, mobile phone payments and other new technology payment instruments, in line with AMBD's initiative to promote e-payment economy.

In achieving outward international integration of its financial sector, Brunei Darussalam will continue to participate in ASEAN integration initiatives and to contribute towards the successful implementation of the ASEAN Economic Community (AEC), which will enhance intra-regional trade through the freer movement of goods, services and skilled labour (Pillar 4). Additionally, Brunei Darussalam will participate in trans-border initiatives that will enable the growth of the financial sector such as the ASEAN Trading Link and the ASEAN Framework for Cross-Border Offerings of Collective Investment Schemes.

Being an information processing and knowledge-based industry, the success of the financial sector is underpinned by a skilled workforce, able regulators and knowledgeable financial consumers (Pillar 5). As such, our strategy includes aligning the national curriculum to the future economy, raising financial industry standards, and developing Syariah experts through collaboration with the Ministry of Education, higher learning institutions, training institutes and the financial industry.

Islamic Finance.


With a strong Islamic banking sector, a growing Islamic insurance (takaful) industry and an expanding market for Islamic bonds (sukuk), Brunei Darussalam has recently been drawing much attention internationally as a center for Islamic financial services (IFS). Indeed, Brunei Darussalam is now amongst the nine countries worldwide where Islamic finance has reached systemic importance — places where more than 15 percent of total domestic banking assets belong to the sector. How do you assess Brunei’s performance in terms of Islamic Finance?

Currently, Brunei Darussalam ranked 14th out of 124 countries that practice Islamic Finance on the ICD Thomson Reuters Islamic Finance Development Indicator 2016, which we believe is a strong competitive position.

Over the past couple of years, the Islamic Finance sector in Brunei Darussalam has flourished. In the banking sector, Islamic banking assets account for 61.9 percent of the total market share while in the capital market sector, the share of the Islamic fund market in Brunei Darussalam has expanded from 31 percent in 2015 to 54 percent in 2017. Having said that, AMBD intends to further facilitate the development of Islamic Finance in Brunei Darussalam.

Islamic Fintech has garnered more and more interest in the global market. We have seen significant developments in a number of jurisdictions with regards to this. It provides a new gateway for new participants in the financial market, allowing them to tap the economic opportunities in the region. In line with this, AMBD has recently introduced the FinTech Regulatory Sandbox Guidelines. The Regulatory Sandbox compliments existing frameworks in AMBD's efforts to encourage innovation in the Financial Industry, by allowing companies to experiment with innovative products and services.


What are Brunei's competitive advantages to position itself as the Islamic finance hub in the region?

Brunei Darussalam's political, social and economic framework aligns to Islamic teachings and principles, providing the country with a competitive edge. This is exemplified by the national commitment to the Melayu Islam Beraja (MIB) ideology which has been in practice for 600 years, contributing to political and social stability.

Brunei Darussalam has a strong legal infrastructure for Islamic Finance. Legislations that are currently in place are Syariah Financial Supervisory Board Order, 2006; Islamic Banking Order, 2008; Perbadanan Tabung Amanah Islam Brunei Act, Chapter 163; Takaful Order, 2008; International Insurance and Takaful Order, 2002; Securities Markets Order, 2013; Finance Companies Act (Chap. 89); and Pawnbrokers Order, 2002.

We also have a strong Syariah governance framework with a two-tier Syariah governance structure comprising of a centralized Syariah Financial Supervisory Board (SFSB) and an internal Syariah Advisory Body within each Islamic Financial Institution.

The Islamic Finance industry in Brunei Darussalam has also been very active, with conferences such as the Brunei Darussalam Islamic Investment Summit 2017, as well as the recently launched Islamic Finance website and app. As demand for Islamic finance continues to grow, Brunei Darussalam aims to further leverage on its existing strengths to evolve into an Islamic finance hub to serve the fast-growing ASEAN region. The FSBP sets out strategies that will elevate the reputation and quality of Islamic finance in Brunei Darussalam. AMBD actively conducts stakeholder engagements to promote these aspirations, as well as work visits to build and enhance strategic partnership.