Past Performance

The Muslim population in Thailand is extremely conservative and has a very strong influence on Malaysian Islamic values, since the provinces in which Thai Muslims live are adjacent to northern Malaysia. Most Thai Muslims speak Malay, the language of Malaysia. Thais also have ancestral relations with the Malaysian people. These Muslims have very stringent economic and financial values that have kept them away from the financial and banking system of Thailand for a very long time.

The Islamic financial system in Thailand started with Pattani Islamic Savings Cooperative, a cooperative society established in 1987 and based on Shari'ah principles. By the end of 2001, four other Islamic savings cooperatives had been established in southern Thailand: Ibnu Affan Savings Cooperative (in Pattani), As-Siddiq Savings Cooperative (in Songkla), Saqaffah Islam Savings Cooperative (in Krabi), and Al-Islamiah Savings Cooperative (in Phuket). These societies have successfully established themselves as viable financial institutions in managing and mobilizing Muslims funds. For example, total assets for the Pattani Islamic Savings Cooperative were 90 million baht at the end of 2001, and total assets for the Ibnu Affan Islamic Savings Cooperative were 60 million baht at the end of 2002.

To bring Muslims into the mainstream financial sector and create a platform to support their economic well-being, the government of Thailand initiated Islamic banking with the implementation of an Islamic window by Government Saving Bank in 1998. A similar concept was introduced by the Bank for Agriculture and Agriculture Cooperative in 1999. In 2001, the Krung Thai Bank became the first bank to set up an Islamic branch, which offers a full range of basic banking products and services based on Islamic principles.

Another key milestone for Islamic banking in Thailand was the enactment of the Islamic Bank of Thailand Act of 2002. This law paved the way for the establishment of the first full-fledged Islamic bank, the Islamic Bank of Thailand, in 2003.

Prospects

The economy of Thailand is based on the creation of real assets, which is the fundamental prerequisite for all Shari'ah-compliant transactions. The beauty of the Thai economy is that it has a built-in feature of sustainability caused by the fact that the income generated is usually reinvested in the same system; little is taken out of the country in foreign investments. This is the main reason the Thai economy has been able to survive global financial crises as well as local natural disasters. The concept of a built-in risk management and self-growth mechanism indicates that the scope of Shari'ah-compliant banking in general, and the development of an appetite for Shari'ah-compliant investment products in particular, is immense in this country.

Presently, the Islamic Bank of Thailand is the only Shari'ah-compliant banking institution in the country and one of two Shari'ah-compliant financial institutions; the other is the Ammanh Leasing, a listed company that is a subsidiary of the Islamic Bank of Thailand.

Asset Management

The first asset management company was established in 1975 by the Thai government in cooperation with the International Finance Corporation, a financial arm of the World Bank. The first mutual fund, Sinpinyo Fund, was launched in 1977 with an initial size of Bt100 million and a 10-year maturity. In 1992, the Securities and Exchange Act, B.E. 2535, came into force. The office of the SEC was accordingly established to monitor, supervise, and promote the development of the country's securities and fund management business and the capital market. On March 19, 1992, the Ministry of Finance granted new mutual fund licenses to another seven asset management companies, making eight asset management companies all together.

This stimulated a rapid growth of the asset management business, and it has played a vital role in the country's capital market development. At the end of 1995, the SEC accepted additional applications for licenses to operate mutual fund businesses. Seven groups (excluding the founder of Thai Trust Fund Management Company) were endorsed by the SEC. During 1996–1997, several groups gradually formed companies to accommodate the mutual fund licenses granted by the Ministry of Finance. However, only 6 companies were established, making a total of 14 asset management companies.

The asset management industry is large, complex, and fragmented. With assets in the tens of millions of baht, the industry is noted for the wide scope and depth of its investments, ranging from equities, bonds, money market, and currencies to their equivalent derivatives. At present, there are two asset management companies offering Shari'ah-compliant Thai baht-based mutual funds, which are listed on the stock exchange of Thailand.

Tax and Accounting

Even though the government has introduced Shari'ah-compliant financial institutions in Thailand, it previously lacked the necessary legal infrastructure for high-profile Islamic products such as sukuk. Today Thailand has advanced a few steps into the growing Islamic finance market by developing its laws. The main players in this are the SEC, the Ministry of Finance, and the Ministry of Revenue and Taxation. The initiative was taken by the Islamic Bank of Thailand, because when it developed products according to Shari'ah-compliant structures, it was faced by the issue of double taxation, which hampered the introduction of structures like musharaka, murabahah, and istisna.

The bank approached the Ministry of Finance, which took up this issue with the SEC and the Ministry of Revenue and Taxation. After years of painstaking efforts by the stakeholders, the necessary changes have now been made for specific Shari'ah-compliant structures and are pending approval from the cabinet.

Retail and Microfinance

Thailand's economy is based on the contribution of the small and medium enterprise (SME) and micro SME sector. This is the largest and most versatile sector in the country and is now a leader in products ranging from industrial goods to textiles to processed foods. The market strategies for catering to the financial needs of this sector are taken up by the government itself, which creates and funds various support programs and induces the financial sector to meet the shortfall.

The Islamic bank of Thailand is now a leader in SME and micro SME financing; it has its mandate as well as support from the government. Various projects have been initiated by the government especially in the Muslim-dominated south. The Islamic Bank of Thailand also has a nationwide branch network providing retail banking products and services, which include savings accounts and personal, trade, real estate, and housing loans. All these services are Shari'ah-compliant.

Takaful and Re-Takaful

The word takaful, or Islamic insurance, is derived from the Arabic verb kafal, which means to aid or help out. Takaful is about shared responsibilities, solidarity, and cooperation. Technically, it is a legally binding agreement between all the participants of a scheme to pay any of the members who suffer a loss as specified in the takaful certificate (policy). The purpose of this system is not profit or gain but to uphold the principle of mutual assistance and shared responsibilities in taking precautions against risks and misfortunes for all individuals constituting the group. In addition, funds collected through takaful premiums are channeled into Shari'ah-compliant investments that involve environmentally friendly and socially responsible business activities.

At present there are two takaful operators in Thailand: Finansa Shari'ah and Muangthai Takaful. Muangthai has teamed up with the Islamic Bank to offer Muangthai takaful services to Thai Muslims.

Eight types of Muangthai takaful life insurance policies are promoted by the group's sales agents and through 28 Islamic Bank branches. The group also plans to launch Shari'ah-compliant nonlife insurance products. There are three main models of takaful in common practice: mudaraba (profit sharing), wakalah (expert hiring), and a combination of these.

Two special characteristics of the Islamic financial system for community empowerment are its mosque-centered approach and its emphasis on zakat and community welfare. Any approach that distanced itself from a mosque-centered outlook would be counterproductive and unsustainable. Since zakat and community welfare are inherently embedded into the community's way of life, any attempt to take these functions away from the mosques would drive the community toward a suboptimal and confusing state.

In this framework, the flow of wealth in the community is considered the community's capital, which can be directly and collectively managed by the mosque.

There are at least six sources of income for the community:

1. Donations. Sadaqah jariyah (this term means “continuous alms/charity.” A continuous charity is an action that someone does that remains active even after the person is dead. It can also be explained in the popular parable, give a man a fish and he can eat for a day, but give a man a boat and a net to catch fish and he can feed himself and his family for a lifetime). This is one of the most commonly used methods for providing microfinance at the grassroots level.
2. Investment fund for community business. The mosque owns some community businesses for which the community's members share the investment.
3. Savings fund for outside investment. When the savings fund exceeds the community's capacity to manage it profitably, the community saving group will invest it in low-risk, Shari'ah-compliant companies outside the community.
4. Zakat. This is the part of some personal or collective wealth that is given away in order to “purify” the rest of the wealth. It is to be distributed among eight classes of needy people.
5. Loans. These are obtained in the name of the mosque from any pure sources.
6. Community product sales. Sales managed collectively by the community.

The takaful business in Thailand lacks two important factors: first, the opportunity to create assets for investment purposes, and second, the interest and intention from customers to seek takaful services. Unlike countries that have a majority Muslim population, Thai Muslims, who are the minority in Thailand, see takaful businesses as a gimmick to woo them into the insurance business. The blame for failure, or lack of growth, is shared by the service providers as well as the service users.

Sovereign Ratings and Sukuk

A sovereign credit rating is the credit rating of a sovereign entity—that is, a national government. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors who are looking to invest abroad. It takes political risk into account.

Asia, particularly Southeast Asia, has so far been recognized for its resilience in the face of the intensifying crisis in the euro area. In 2013 Standard & Poor's (S&P) raised the sovereign rating of the Philippines to BB on rising fiscal flexibility and the rating of Korea to A+/AA- on reduced geopolitical risks. S&P maintains Thailand's sovereign rating at BBB+. Thailand's sovereign credit rating had been downgraded in 2009 following political instability, which led to the closure of Suvarnabhumi Airport in 2008 and resulted in riots in subsequent years

The sovereign rating of Thailand has not been an issue for some time, since the government rarely borrows from overseas lenders. But the sovereign rating is important because it reflects on corporate funding costs. Credit rating agencies should be notified that the Thai economy is solid and that there is a chance for an upgrade. The Thai government's positive move bucks a global trend. All countries are expected to be directly or indirectly hit by the global crisis—triggered chiefly by the euro-zone debt crisis and the U.S. “fiscal cliff.”

The S&P analytical manager for sovereign ratings in the Asia Pacific region, Tan Kim Eng, noted that Thailand's government debt is essentially lower than that of other countries in the same category. But political instability remains high, which poses problems for public investment projects. Moody's Investors Service and Fitch Ratings maintained Thailand's ratings at Baa1 and BBB, respectively.

Thailand is in a phase of infrastructure development that is related to energy, technology, construction (commercial as well as residential), and transportation. Based on the projections of the government, the cost of these plans runs into trillions of Thai baht, which will be generated from the banks and the public.

In terms of its economic cycle, the Thai economy is now at a cooling stage in which stability is more important than additional growth. The global economic situation has contributed to the trade balance as well as the currency, which in the past year saw an unprecedented appreciation against the U.S. dollar, making the baht the strongest currency in the region. However, with the strengthening of the dollar in global markets, the baht not only came down but also surpassed its lowest level against the dollar.

All these issues lead to the conclusion that the Thai economy will be affected if the projects are funded from internal sources even though the government has a substantial foreign currency reserve. This reserve may be considered as a cushion against the constant changes in the global sociopolitical environment, which always has repercussions on the Thai economic system.

The major flow of funds from Shari'ah-compliant investments comes from the GCC, which is short of real assets except for real estate projects. Therefore, in order to tap this avenue of funds for megaprojects in accordance with Shari'ah requirements, the issuance of sukuk by the government of Thailand would be an ideal method. Historically, Thai government issue bonds have appealed to both local and foreign markets, and intensive activity has recently been witnessed in the Thai bond market.

Sovereign sukuk for government projects, especially in the field of energy and telecommunications would be an ideal way to seek international investment and would lay the foundation for the various private corporate giants to seek funding in the form of corporate sukuk.

Thailand's banking system has ample liquidity, which is sufficient for the local banking requirements of businesses. The Thai economic system is based on local currency with very limited exposure in the global markets. What is earned is kept in the country, which results in a flood of deposits for the banks.

The decision for moving toward sukuk issuance has to come from the government in the form of sovereign sukuk. The local banking industry does not have the knowledge, exposure, or will to develop that instrument. It has been very successful in launching local bonds, both government and corporate, so the incentive for anything else is very limited. The effort has to be initiated by the government, which will then encourage the investment banking teams of financial institutions to come up with their own mandates.

Sukuk

In a country where the major religion is Buddhism, Thailand has been able to understand the need and wishes of its of Muslim minority by moving toward Shari'ah-compliant financing and products. Another major achievement was the approval of sukuk regulations by the SEC. This has laid the foundation for the issuance of sukuk in Thailand, in local as well as in foreign currencies.

The basic structure for sukuk is still under question. The system and regulations imply the concepts of al-bai' e inah and al-bai dayn, which are not considered to be Shari'ah-compliant structures. This is an influence from the Malaysian system, which used to follow these structures in its early stages. Another structure that may be looked into is wakalah, which carries some risk for the investors in terms of the asset quality be carried out with the funds.

Unfortunately, until recently, mudaraba and musharaka structures were not on the radar of the Shari'ah advisors in Thailand. Though preferred internationally, these asset-backed structures have taken a backseat because of the double taxation issue.

Thailand is an ideal place to issue sukuk that are asset-backed because the country is filled with real assets that can be used for securitization. However, for the development of megaprojects like railways, highways, and power generation, the asset-based sukuk may be more lucrative for investors.

Trans Thai-Malaysia was the first Thai company to raise funds in the Islamic capital markets with the issuance of 600 million Malaysian ringgit serial sukuk in the Malaysian market. The bonds, which mature in 5–15 years, are structured under Shari'ah principles. They were issued by the special purpose vehicle TTM Sukuk. This is a significant landmark transaction for the PTT Group, the first Thai issuer in Islamic capital markets.

How can this vast spectrum of investment opportunities be tapped? Investors need to show an interest in the development of Shari'ah-compliant banking and investment opportunities in Thailand. The Bank of Thailand and the SEC have done a lot to put Shari'ah-compliant systems and regulations in place. The Islamic Bank of Thailand is the biggest example of the evolving interest in Shariah-compliant banking in the country. It has made sure that it provides the best Shari'ah-compliant products to its customers without any discrimination by religion, caste, or ethnicity.

However, it is unfortunate that no institutional interest has been shown by Thailand's neighbors, who are more versatile and well established in the field of Shari'ah-compliant banking. GCC interest is also not present; there is not a single GCC-based financial institution in Thailand at the moment. The development and evolution of a system can take place only when interest and dedication are shown by many. In order for Shari'ah-compliant banking to be developed in Thailand, it is therefore necessary that financial institutions around the globe and from the neighboring countries in particular come and explore the opportunities. This will streamline the systems, regulations, and procedures for Shari'ah-compliant banking in Thailand and create new Islamic banking assets and investments as well.

Debt Capital Markets

The Thai stock exchange witnessed a spectacular performance in 2012, driven by the strong domestic economy, which concurrently strengthened Thai companies financially and drew huge foreign fund inflow. Though failing to sustain the 1,400-point psychological high that it briefly achieved, the stock exchange's composite index gained 36.06 percent to end the year at 1,391.93 points, making it one of the best performers in the world (see Figure 29.2). Market capitalization rose 41 percent year to year to Bt11.83 trillion.

Thanks to quantitative easing in developed economies and the strong domestic economy that attracted such “hot money,” foreign investors ended the year as net buyers, with purchases outpacing sales by Bt76 billion, against net sales of Bt5 billion in 2011, according to the stock exchange data.

The net-buy position hit Bt86 billion after big-lot adjustment, the highest since 2005.

The strong postflood recovery of the Thai economy has boosted investment sentiment. The flood was highlighted as the main catalyst driving the government to make enormous investments in infrastructure work, which would spark new private investment and sustain the economic growth amid declining export demand. As foreign funds flowed to Thai shares and bonds, the index hit a number of 16-year highs in 2012. On December 27, the index hit 1,397.19 points, the highest in 16 years and 10 months.

Thai companies are boosting investment in and out of the country, and the stock market's rise offered a golden chance to raise cheap funds. A total of 154 listed companies made public offers to raise a total of Bt262 billion, the highest in 10 years. The biggest fund-mobilization deal was from PTT Exploration and Production, worth Bt92 billion—which is also the biggest public offer by a listed company since the stock exchange was established 38 years ago. Trailing behind was Krungthai Bank, which raised Bt35 billion.

Thailand's money market is balanced with two-way capital flows, resulting in less intervention by the central bank. Now foreign capital flows in and out of Thai stocks and bonds while Thai investment, particularly direct investment, has been expanding outside the country thanks to the central bank's more relaxed rules in this area. The capital inflow from foreign investors has become the hottest issue in Thailand's financial market. This continual inflow caused the baht to appreciate to its highest level in 16 years, at 29.19 per U.S. dollar.

There are a couple of fundamental reasons that the country has attracted foreign funds. First, liquidity from the recovery and economic-stimulus packages in other countries has caused a global imbalance in capital flow. Second, the return or yield from investing in Thailand is still attractive, and the recovery and growth rate of the Thai economy has been stronger than in other countries in the region.

The Bank of Thailand, which oversees the stability of the baht, has several measures to closely monitor and track the appreciation of the currency. However, the central bank has not reduced interest rates to slow the inflow of capital; it has instead focused attention on the baht's movement being in line with market conditions and reflecting the real supply and demand of the unit relative to foreign currencies.

Moreover, some measures have been prepared to respond to external factors beyond the central bank's control, to limit baht volatility and prevent any economic inequality that would cause severe damage to the country. Capital inflow and the appreciation of the baht have both beneficial and adverse effects on Thailand's economy. There are benefits for importers, since the cost of imports is reduced, and also for foreign-currency debt repayment.

The baht's strengthening mainly affects the export sector, with exporters generating less money when converting foreign currency into the local unit. Because Thailand's economy is mainly reliant on exports, this appreciation may slow economic growth in the future. However, looking at it from another angle, the continual capital inflow could be a reflection of foreign investors' confidence in Thailand's economic fundamentals. As for movement in the Thai financial market, foreign investors have continued to be net buyers, to the tune of Bt93 billion in the bond market, comprising Bt38 billion in short-term bonds and Bt55 billion in long-term bonds. At the same time, they have been net sellers, amounting to Bt6.2 billion in the Thai stock market. Meanwhile, the Thai bond yield curve moved in a narrow band last month, shifting down in a range of –5 to –10 basis points.

Most trading activity has been concentrated on short-term bonds issued by the Bank of Thailand. Turnover in the secondary bond market recently reached Bt2.1 trillion, or a daily average of Bt100.8 billion, decreasing 1.5 percent from February, when a daily average of Bt102.3 billion was recorded. More than 69 percent of daily average value, or Bt69.88 billion, was in short-term bonds of less than one-year maturity, while the remainder was in longer-term maturities. The major investors in the Thai bond market were still asset management companies, which accounted for 54 percent of total trading value, while foreign investors captured 20 percent, or Bt270.7 billion. At the end of June 2013, foreign investors' bond holdings stood at Bt850 billion, accounting for 9.9 percent of the overall bond market's outstanding value and well above the Bt710.5 billion recorded at the end of 2012.

The Shari'ah advisors in Thailand, in the absence of Shari'ah-compliant investments and securities, had allowed institutions to invest in the zero coupon bonds issued by the Bank of Thailand. These bonds have 3, 6, and 12 months' tenure. The reason for such a decision was to ensure that the excess liquidity could be deployed, which would provide sustainable returns to the depositors.

Though not preferred, this arrangement is required because the only Shari'ah-compliant bank in Thailand is a specialized financial institution, which is a state-owned enterprise reporting to the Ministry of Finance rather than to the Bank of Thailand. Therefore, most of the large deposits are from the government, and government funds are not allowed to be invested in any currency other than Thai baht, so the chance of investing in dollars or any other currency is not available at the moment.

In the interbank market, the structure of al-bai' e inah is being used for the placement of funds borrowed under a promissory note. The Shari'ah advisors have approved two products for interbank transitions that are based on commodity murabahah and wakalah. Unfortunately, since there is only one Shari'ah-compliant financial institution in Thailand, there is no party other than conventional banks. They have shown little interest in the two methods of interbank transactions, and the legal documents are not been cleared by their legal departments. The other issue is that of double taxation, which has hampered the growth of commodity murabahah.

The option of equity or stock investments based on Shari'ah-compliant companies is very lucrative in Thailand. There are many companies that fall under the international standards of Shari'ah compliance. The majority of these stocks are highly profitable and provide regular dividends. Many asset management companies, local as well as offshore, with Shari'ah-compliant funds have been investing in Thai capital markets. The stock exchange has shown an interest in having investors from the Malaysian as well as the GCC market come up with Shari'ah-compliant equity funds. This would bring foreign investment into the country from regions that have strong Shari'ah-compliant financial systems and that are constantly looking for new asset portfolios.

Regulatory Issues

In Thailand, Islamic banks are governed under the Islamic Bank of Thailand Act of 2002, which comes under the jurisdiction of the Ministry of Finance. Since the Bank of Thailand is responsible for monetary policy and regulating commercial banks in Thailand, it is in a good position to supervise the operations and activities of Islamic banks. This would be evident if there were more Islamic financial institutions in the country.

Cross-Border Financing

Cross-border relationships remain new to the Thai economy, and the degree of cooperation is at the beginning stage.

Thailand, and particularly its financial industry, has only recently been significantly exposed to foreign competition. This is because of the World Trade Organization, the General Agreement on Tariffs and Trades, and other international trade groups and agreements. The protective regulations for local markets and industries have been relaxed and lifted. Foreigners have started to play a more important role in the Thai economy.

Alliances between Thai and foreign firms have been widely employed in order to make a tradeoff between the risks and returns from investments and to achieve mutual benefits. This phenomenon has been clearly seen in the financial industry, which has become much more internationalized than other business sectors.

From an Islamic banking perspective, a cross-border financing relationship does not exist at all. This is mostly attributed to the lack of regulatory issues and opportunities in the corporate and financial sectors.

Conventional cross-border fundraising can be implemented, but because of ample liquidity in the Thai banking system, the need to send funds offshore was never felt. In sectors other than the financial, offshore financing is more in the form of joint ventures. For development projects like building roads and bridges, for power generation, and for corporate development, foreign financing has been very frequent, especially from Japan and South Korea.

Cross-border financing can be achieved by issuing sovereign sukuk or developing syndicated musharaka transactions. This would open the floodgates of foreign investment in the country. It is seems that the government does not want a heavy inflow of foreign exchange, however; it strengthened the Thai baht to the extent that it has a negative effect on exports. In order to stabilize the economy and the money supplying the system, internal resources are utilized more than foreign participation is depended on.

Conclusion

Thailand at present looks at the market players to develop an Islamic banking and finance system. They are currently more focused on SME and micro SME financing, but the intention is to go for the retail banking sector, large corporate enterprises, and an investment banking capability to institute, develop, and market project finance instruments.

The country, despite numerous commitments, has still not been able to launch its first sukuk issuance. In the case of retail banking, efforts are being made to create awareness of Shari'ah-compliant banking, and the Islamic Bank of Thailand already has a nationwide branch network providing retail banking products and services. These include savings accounts as well as personal, trade, real estate, and housing loans. All these services are based on and compliant with Islamic banking principles

In terms of large-scale project financing and capital market operations, Thailand still has some way to go. The organization of sukuk issues, whether in the form of a national-level sovereign sukuk or specific sukuk issues for transport, energy, or other infrastructure projects, requires international banking capability. This is required both for the design of the funding structure and or the mobilization of major international fund providers.

Although Thailand is surrounded by countries that are leaders and pioneers of Islamic finance, there is hardly any interest shown by them in developing Islamic banking in Thailand. The central bank of Thailand and the SEC have their own knowledge of Islamic finance. The Ministry of Finance has teams working on issues of Islamic finance in the Fiscal Policy Office and the Public Debt Management Office as well as at the Islamic Bank of Thailand. The changes in the regulations that benefit Shari'ah-compliant banking have been done entirely by the Thai government, without any significant help from outside.

Mutual fund and equity investors can easily enter the Thailand stock market to invest in Shari'ah-compliant stock securities. The SEC and the stock market are working on the possibility of creating secondary markets and a Shariah index specifying listed Shariah-compliant companies.

Hence, it is a question not of launching Islamic finance in Thailand but rather of developing greater sophistication. The country needs to train bankers, regulatory supervisors, and compliance and audit officials in these new skills. For this upgrading process, Thailand welcomes support from its neighboring countries like Malaysia and Pakistan and from the GCC to initiate Islamic banking. Thais and Malaysians, rather than competing, can work together to build a stronger base for Islamic finance throughout Southeast Asia.

There are many challenges facing Thailand, and indeed any country, in gaining access to this massive funding base. Five are particularly important:

1. Legal and regulatory frameworks
2. Financial reporting and accounting systems
3. Shari'ah compliance
4. Availability of education and skills
5. Development of secondary markets

Shari'ah compliance is a difficult and complicated issue. There has to be a harmonization of legal opinions on the validity of products, operations, and systems. This will ensure that all Islamic financing products, general and specific, will gain acceptance universally. Otherwise, a product that is judged Shari'ah-compliant in one market will not gain acceptance in another market. As Islamic finance develops, experts in Islamic principles, laws, and finance will undoubtedly reach a consensus. But we have not arrived at that point yet.

Regarding skill shortages, Thailand recognizes its particular need for development. The country's higher education system does not yet provide adequate opportunities to acquire such skills. However, Malaysia has developed an extensive skills base, with an expanding range of educational institutions and a widening resource of expertise. Cooperation between Malaysia and Thailand has already commenced and will undoubtedly expand in the future. Similarly, the expertise from Pakistan, especially in its regulatory and structural innovation, could lay down a more diversified foundation for Malaysian and GCC investors.

The importance of the development of secondary markets for Islamic finance products must not be overlooked. This is where the SEC and the stock exchange must develop expertise, including by studying the experiences of more developed markets. The main markets for sukuk, which are usually denominated in the U.S. dollar, are international.

Another important area is the education of people in general and Muslims in particular to understand and accept Shari'ah-compliant financial systems. Being mosque-centered, a large number of Muslim communities do not accept Shari'ah banking offered by non-Muslims. Since there are very few Muslim bankers, nearly every important position in the Islamic Bank is managed by non-Muslims. They do not always possesses the knowledge or the credibility that is required by the Muslim population.

Thailand is still at an early stage in the introduction of a Shari'ah-compliant financial system, but it can benefit from the experience, and indeed, by any shortcomings, of those who have traveled the path ahead of it.

About the Author

Aamir Shamim is a Pakistani with a master's degree in economics and 22 years of banking experience in investment, conventional, specialized, and Islamic financial institutions. He was the core member in the restructuring of a specialized financial institution in Pakistan to convert it into an SME bank. He was also the founding team member of an Islamic bank in Pakistan, and he restructured another Islamic bank in the GCC region.

Aamir possesses practical knowledge of and expertise in assets, liabilities, structures, and investments. His main area of expertise is treasury and investments with structured Islamic interbank products, including sukuk. He is currently the senior vice president of the treasury and investment department of the Islamic Bank of Thailand.