Malaysia's central bank said that the country held an edge as a centre for Islamic financial services despite growing competition from other regional players such as Singapore.

"The environment globally is competitive, but I think Malaysia does have the edge because of the comprehensive Islamic financial system that we have," central bank governor Zeti Akhtar Aziz told reporters yesterday.

Malaysia in 1983 introduced the service which provides products and services that comply with Sharia or Muslim religious laws banning the earning of interest.

To cement its leading position, the majority-Muslim country is liberalising its Islamic financial system and promoting itself as a centre for Islamic finance education.

As part of the liberalisation, Islamic banking licenses have been issued to foreign players, while foreign firms are allowed to own up to 49 percent of equity in the Islamic banking and insurance, or takaful, industries.

But analysts say Malaysia has to attract more players and be more aggressive to tackle regional players such as Singapore, already an Asian financial centre, which is muscling in on the lucrative sector.

Total worldwide assets of Islamic financial institutions exceed an estimated 250 billion dollars and are growing 15 percent annually, according to the International Monetary Fund.

New players

However, Zeti said Malaysia's Islamic financial system, supported by its legal infrastructure and continued growth, was well-positioned to evolve.

"We have new players in our system, diversified players and the range of products and service that have been developed, so Malaysia has a very good chance of becoming an international Islamic financial centre," she said.

Zeti said at the launch of AmIslamic Bank, a subsidiary of Malaysia's AmBank, that the country currently has 12 Islamic banking institutions, including three new foreign Islamic banks.

Seven of the Islamic banks, including AmIslamic, have arisen from the transformation of existing banks' Islamic banking operations into subsidiaries.

Zeti said Malaysia's Islamic financial services industry was continuing to register a strong performance.

To date, Islamic banking assets amount to RM113.5 billion (US$31.40 billion and takaful assets were at RM5.9 billion, she said.

Approved Islamic bonds in 2005 exceeded RM40 billion, while the Islamic money market saw monthly turnovers of RM135.2 billion.