Labuan: A Niche in the Islamic Money Market

The 87-square-kilometre island of labuan (population around 60.000), off the coast of Sabah, is geographically placed at the epicentre of Asia pacific region. Major bank in Labuan include Standard Chartered Bank, Hongkong and Shanghai Banking Corp Ltd, bank of Tokyo-Mitsubishi Ltd, Fuji Bank Ltd, BNP Paribas, Dresdner Bank AG and Deutsche Bank AG. Local players include Arab-malaysian Merchant bank bhd, Public Bank Ltd, Maybank International Ltd, RHB bank Ltd, Danaharta Managers Ltd, Bumiputra-Commerce Bank Ltd, Schroders Malaisia Bhd, Citibank Malaysia Ltd, AMMB International Ltd, Bank Ilam Ltd, and JP Morgan Malaysia Ltd.

1. Role of Labuan Financial Services Authority

The Labuan Financial Services Authority (LOFSA) which was established in 1996, is the single regulatory authority in Labuan, with responsibility for spearheading and co-coordinating the development of the island's offshhore industry.
Labuan does havevits own set of offshore legislation. Beginning in 1990, the Federal Government enacted a number of statutes with the aim of promoting Labuan as an IOFC:

• Offshore Companies Act, 1990
• Labuan Offshore Business Activity Tax Act, 1990
• Offshore Banking Act, 1990
• Offshore Insurance Act, 1990
• Labuan Trust Companies Act, 1990
• Labuan Offshore Trust Act, 1996
• Labuan Offshore Limited Partnershipo Act, 1997
• Labuan Offshore Securities Industry Act, 1998

2. Labuan Offshore Companies

The Labuan Offshore Companies Act, 1990 allow the incorporation of an offshore company (LOC) or registration of an existing foreign company (i.e. company incorporate outside Malaysia) with no prior government approval, except in the case of offshore banking, insurance and mutual fund companies where licenses under the applicable regulatory environment are required.

3. Currency and Exchange Control

The offshore transactions carried out in Labuan must be in any currency other than Malaysian Ringgit except for defraying any administrative and statutory expenses and certain allowable investments in Malaysian domestic companies.

4. Tax Incentives

Labuan offshore entities are exempted from withholding tax, stamp duty and any indirect tax such as sales tax, import duties, surtax, excise duties and export duties.

5. Labuan International Financial Exchange

The establishment of the Labuan International Financial Exchange(LFX) is expected to further promote Labuan as a significant financial centre.
The proposed activities of the LFX will include:

• Banking and investment banking
• Money broking
• Trusts
• Leasing and factoring business
• Fund management
• Insurance and reinsurance and other insurance-related activities
• Management company
• Islamic financial services and instrument

6.  Moving Forward with Islamic Banking

The international Islamic Financial Market(IIFM) began operations in April 2002, arising from a coorporative agreement between the Islamic Development Bank, Bahrain Monetary Agency, the central Bank of Indonesia, the LOFSA (representing Malaysia), the Central Bank of Sudan and Ministry of Finance of Brunei Darussalam.
The roles of the IIFM are as follows:

• To promote the harmonisation and convergence of Shari'ah interpretations in developing Islamic banking product and practices which are universally acceptable.
• To Encourage a large number of Islamic financial institutions to participate in the market by introducing a wide range of Shari'ah-compliant product and the creation of an active secondary market thus providing liquidity to the instruments traded in the market.