With a supportive regulatory and tax framework and proximity to large Muslim populations in its neighbourhood, it is only a matter of time before Singapore becomes a major player in Islamic finance, experts say.
Analysts say Sukuk, or Islamic bonds and Syariah-compliant real estate investment trusts, are two products that have strong growth potential in Singapore.
Malaysia's CIMB is among nine international Islamic financial institutions that are now operating in Singapore. So far, CIMB Bank Singapore has sponsored four Sukuk issues worth more than S$1.5 billion.
Mr Devan Selvanathan, Director, Debt Capital Markets & Syndicate, CIMB Bank Singapore, said it is looking to create within South-east Asia, an Islamic financial market that is competitive and can bring overseas issuers to Singapore.
One reason behind Singapore's success in Islamic finance is the Monetary Authority of Singapore's (MAS) efforts to create a supportive framework for a competitive Islamic finance landscape.
Among the incentives offered by MAS are reduced taxes for Islamic transactions, waived off stamp duties for real-estate financing and a five per cent concessionary tax rate for Islamic financing. These have paved the way for the introduction of more Islamic bonds and the entry of Sabana REIT, which last year raised S$666 million in its initial public offering and is the only Syariah-compliant REIT here.
Observers say Singapore's sophisticated capital markets will see more of these products.
Mr Mohammad Faiz Azmi, Global Islamic Financial Leader, PricewaterhouseCoopers, Malaysia, said there is "big demand" for good quality credit instruments.
"Singapore should be trying to attract them (blue chip companies) to try and do their issues out of Singapore. Because the more triple A and double AA type of credit instruments you have out there, the more likelihood there is of people buying them," Mr Azmi said.
But one challenge that the industry faces here is lack of investor awareness about Islamic finance.
Mr Andrew White, director, International Islamic Law & Finance Centre at SMU, said: "We need a greater degree of awareness as to what these products are, and the structures and facilities that are being offered by financial institutions. A lot of people just don't understand."