Bank Negara Malaysia today said it would issue up to three Islamic banking licences to foreign players to bring forward the liberalisation of the Islamic financial sector to 2004.

This is three years earlier than envisaged under the Financial Sector Masterplan and is aimed at making Malaysia a regional Islamic financial hub, Bank Negara said in a statement.

"This move is part of the overall efforts to strengthen the global integration of the domestic Islamic banking system and increase the potential to tap new growth opportunities as well as facilitate international trade and investment flows between Malaysia and the rest of the world," it said.

"It is also a step forward in the development of Malaysia as a regional financial centre for Islamic banking and finance."

Application criteria

Applicants must be a financially-sound licensed foreign Islamic banking institution or a foreign bank with experience in the sector.

They must submit business plans by the end of March, outlining operating details, projected financial conditions for the first three years, ownership structure and background of the proposed senior management team and the board of directors.

Bank Negara said the entity must be locally incorporated as a fully-fledged Islamic bank with a minimum capital of RM300 million.

It may have up to 100 percent foreign equity either in the form of a wholly-owned subsidiary or a joint venture with domestic or foreign investors.

Islamic banking combines Islamic laws against interest payments with modern banking principles.

Islamic financial hub

The Financial Sector Masterplan, which maps out the liberalisation of Malaysia's banking and insurance industry over the next decade, seeks to enlarge the market share of the Islamic financial sector to 20 percent from under 10 percent now.

Predominantly Muslim Malaysia aims to be a key Islamic financial hub in Asia and is also working on setting up an Islamic Financial Market in its offshore financial centre of Labuan on Borneo island.

The central bank in June said it had set up a dedicated High Court to handle Islamic banking and finance cases, formed a law review committee and was finalising disclosure standards for Islamic banks.

As of April 30, assets in the Islamic banking sector stood at RM72 billiont, representing 9.2 percent of the overall banking system. Deposits totaled RM55 billion or 10 percent of the market, while financing was RM40 billion or nine percent. - AFP