Beruflich Dokumente
Kultur Dokumente
Ricardo Baba
Labuan School of International Business and Finance, Universiti Malaysia Sabah (UMS), Labuan, Malaysia
Hanudin Amin
Labuan School of International Business and Finance, Universiti Malaysia Sabah (UMS), Labuan, Malaysia
Abstract
Purpose – The purpose of this paper is to detail the findings of a study to determine the viability of Islamic
banking as a niche for the Labuan International Offshore Financial Center (IOFC). Labuan was declared
an IOFC by the Malaysian Government in 1990, with the goal of developing it as a financial “supermarket”
offering a wide range of offshore financial products specializing in Islamic finance.
Design/methodology/approach – The paper employs the mail survey method to ensure the anonymity of
the respondents and the whole population of banks are used, which enables the researchers to ignore the
problems of bias in the sampling. Data collected from the survey are analyzed using descriptive statistics,
mean, standard deviation, and frequency counts.
Findings – The results of the survey indicate that Labuan offshore bankers do not have a clear notion of
Islamic banking principles and practices. The results also show that most of the offshore banks do not
have officers and staff who are conversant with Islamic banking. Nevertheless, conventional offshore
banks are willing to train their officers in Islamic banking skills and participate in future Islamic deals. The
findings also indicate that Islamic banking is a viable niche for the Labuan IOFC. However, the results
also show that Labuan does not have competitive advantages over Bahrain and London, currently the
leading Islamic finance centers in the world.
Research limitations/implications – There are three major limitations of this paper. These limitations are
further explained in the conclusion's part.
Practical implications – There are three major implications of these findings. First, the authorities ought to
enhance the knowledge and expertise of the conventional offshore bankers by facilitating training in
Islamic banking skills. Acquisition of such knowledge and skills would encourage them to participate in
future Islamic banking deals. Second, the industry and the authorities responsible for the IOFC have to be
both innovative and creative. In order to convince conventional offshore bankers that Islamic banking is a
viable alternative to conventional banking the products and services offered must be seen as value
added. A creative tax regime should have a substantial impact in terms of increased profit margin or
reduced cost on the part of the offshore banks. Third, improving the physical infrastructure and
overcoming the geographical location disadvantage of Labuan should become the priority of the
authorities overseeing the development of Labuan as an IOFC.
Originality/value – The paper provides fresh results on the viability of Islamic banking operations in
Labuan IOFC.
INTRODUCTION
The Malaysian government has spent several hundred millions ringgits building state-of-the-art
infrastructure in Labuan to portray the image of a world-class offshore financial center (Ahmad
and Kefeli 2002). During the early stage of its operations Labuan has done well in its core
business of offshore banking by attracting both reputable international banks and business
volume (Ahmad and Kefeli, 2002; Abbott, 1999; Skully, 1995). However, the 1997-1998 Asian
Crisis has done some serious damage to the aspiring IOFC. Mergers and closures of some of the
foreign banks have brought the numbers down to 50 operational banks, and the offshore banking
business has been stagnant since 1997 (LOFSA Annual Report, 2002).
Despite these setbacks the Malaysian government remained committed to the development of
Labuan as a premier IOFC in the region. Lessons learnt from the crisis prompted the Malaysian
government to direct Bank Negara Malaysia to formulate the Financial Sector Master Plan in
March 2001 as a means to create a more stable and secure financial industry in the country. The
master plan spelt out a clear strategic focus to develop and promote the expansion of Islamic
banking parallel with conventional banking. Evidently, Islamic banking was also identified in the
master plan as a niche for the Labuan IOFC. To maintain the competitive edge of the Labuan
IOFC the master plan proposed three major recommendations, one of them being the
development of Islamic banking and takaful business.
However, it is suggested that the government’s commitment (Abbott, 1999; Skully, 1995), and
years of experience in domestic Islamic banking (Ahmad and Kefeli, 2002; BNM 2002; Haron
and Ahmad, 2002; Shariff and Mahmood, 2000), and Shariah-compliance alone would not be
enough to guarantee the success of an international Islamic financial center. For an offshore
financial center to be successful it must have the “necessary” attributes (Felmingham and Dean,
1998; Tan, 1982; Skully, 1995; Tan and Vertinsky, 1987; Jao, 1980). These attributes are a
liberal environment, strategic geographical location, stable political environment, stable
economic performance, the presence of international banks, quality labor force, a developed
financial and physical infrastructure, and the assurance of confidentiality and secrecy.
For an international Islamic financial center to be successful it should have, aside from the
Shariah requirement the ability to attract Islamic investment interest as well as international
financing activities (Lewis and Algaoud, 2001). In addition, financial institutions residing in the
offshore financial centers (OFCs) should be willing to provide the Islamic financial products and
services, and to participate in Islamic syndications (Haron and Ahmad, 2002; Tan and Vertinsky,
1987).
The Malaysian government’s presumptions that Labuan had all the above attributes, which gave
it the competitive advantages in its quest to carve a niche in Islamic banking has not been
adequately supported by any empirical study. More empirical studies should be directed toward
this area especially to determine whether the predominantly conventional banks in Labuan were
ready to take up the challenges of Islamic banking, or whether Labuan had the necessary
infrastructure, or strategic geographic location. The outcomes of such studies would be helpful to
those involved with decision-making in formulating new strategies, and making sensitive
adjustments to current policies to suit the prevailing market realities.
More specifically, this study is guided by the three objectives. First is to determine the offshore
bankers’ knowledge and perceptions of Islamic banking. Second is to determine the readiness of
the conventional offshore banks to participate in Islamic banking transactions. Third is to
determine the competitive advantages of Labuan compared to Bahrain and London.
This paper is organised as follows: the next section will review the literature related to studies on
customers and bankers’ perceptions of Islamic banking, and studies on Islamic banking that
relate to Labuan. Followed by the section that provides a discussion on research method.
Followed by the section that considers the analysis of the results. Followed by a discussion on
study implications, future research direction. The paper is closed with a conclusion.
LITERATURE REVIEW
Some pioneering Islamic banks, on a very modest scale, were established in Egypt in the 1960s
and operated as rural social banks along the Nile Delta (Hassan and Ahmed, 2002; Khan, 2000).
Among the first institutions was the Nasser Social Bank, which started operations in Cairo,
Egypt in 1972. Then, in 1975 the Dubai Islamic Bank was established (Khan, 2000). Since the
last two decades the growth of Islamic banking has been phenomenal, speeding along at 15% per
year, and currently there are 160 financial institutions in the world today offering Islamic
banking products and services (Hassan and Ahmed, 2002). This pattern of growth has attracted
traditional banks such the HSBC Bank, ANZ Grindlays, Standard Chartered Bank, Barclays,
Citibank, ABN AMBRO, Klienwort Benson, Merrill Lynch, Chemical Bank, Midland Montagu,
and Goldman Sachs (Khan, 2000; Hassan and Ahmed, 2002). The amount controlled by these
institutions is estimated to range from USD50 billion to more than USD100 billion (Hassan and
Ahmed, 2002; Lewis and Algaoud, 2001; Buckmaster, 2000). The latest estimate of assets
managed under Islamic Shariah principles is USD200 billion (Alam Shah, 2004).
In Malaysia the first Islamic bank, Bank Islam Malaysia Berhad (BIMB) started its operations in
1983. The Malaysian government’s aim was to develop an Islamic banking system parallel to the
conventional banking system. To this end the government introduced the concept of an ‘Islamic
window’ instead of establishing new Islamic banks (Ahmad and Haron 2002). The concept of the
Islamic window was initiated in March 1993 when Bank Negara Malaysia (BNM) introduced the
“Interest-Free Banking Scheme”. Initially only three Malaysian banks took up the challenge. As
at end of 2003, the Islamic banking system comprised two Islamic banks, thirteen commercial
banks, seven finance companies, four merchant banks, and seven discount houses. The
distribution network comprises 152 full-fledged Islamic banking branches and 2,065 ‘Islamic
windows’ (BNM, 2003).
Haron et al. (1994) studied the bank patronage factors of both Muslim and non-Muslim
Malaysians, and sought to establish the criteria used by Muslim customers in selecting their
banks. The study revealed that Muslims in Malaysia perceived fast and efficient service, speed of
transaction, and friendliness as important criteria in selecting their banks. Another finding of the
study indicated that conventional bank customers were willing to patronize Islamic banks if they
had sufficient knowledge of Islamic banking practice. Eighty percent of Muslim and 53% of
non-Muslim respondents indicated that they would consider patronizing an Islamic bank if they
understood its operations.
Gerrard and Cunningham (1997) replicated Haron et al’s study in Singapore, and found that
Muslims, in contrast to non-Muslims had a different attitude towards Islamic banking. The study
revealed a small proportion of Muslims was aware of the concept of Islamic banking, while non-
Muslims had an almost total lack of awareness. Similar to Malaysians, the Singaporeans, both
Muslims and non-Muslims did not differ in their bank selection criteria.
Metawa and Almossawi (1998) studied the customers of two leading Islamic banks in Bahrain:
the Bahrain Islamic Bank and Faisal Islamic Bank. They found that customers of these two
Islamic banks considered Islamic principles as the most important factor in selecting Islamic
banks. The second important factor was rate of return (from profit and loss sharing), which
adhered to Islamic principles. The next important selection criteria were the advice and
recommendations from family and friends, followed by convenience of bank location. The study
also indicated that socio-demographic factors such as age, income and education had strong
influence in customer selection of an Islamic bank. The findings of this study, which indicated
Islamic bank selection as a predominantly religious-based decision, contradicted those findings
by Haron et al. (1994), and Gerard and Cunningham (1997).
Naser et al. (1999) studied the customers of the Jordan Islamic Bank for Finance and Investment
in Jordan, and found that the customers considered adherence to Shariah principles as the
overwhelming reason for banking with Islamic banks. The most important factor influencing
customer choice of an Islamic bank was reputation. This was viewed as religious in nature, as
Islamic banks operate in line with Islamic teachings, thereby maintaining a good reputation and
establishing clients’ confidence in the way it operates and discloses information. The second
important factor was religious, followed by the observation of Shariah principles, confidentiality,
profitability, and advice from relatives and friends. The findings of this study indicating religion
as the overwhelming reason for patronizing Islamic banks was in conformity with those findings
of Metawa and Almossawi (1998).
Ahmad and Haron (2002) studied the perceptions of non-Muslim corporate customers in
Malaysia towards Islamic banking, and found that their knowledge of Islamic banking was
limited. The study indicated that Islamic banking products and services were not popular among
the non-Muslim corporate customers. The study also revealed that the most important factor
perceived by corporate customers in selecting their banks was the cost of the services and
products.
Hassan and Ahmed (2002) studied bankers and bank customers in Dhaka, Bangladesh to
examine the similarities and differences of the conventional and Islamic banking systems. The
findings indicated that both the bankers and bank customers had confused notions about Islamic
banking practices. The misleading similarities between Islamic and conventional banking
products were due to the following: first, fixed charges in percentage, which increased with time
as compensation for violation of agreement for repayment schedule on investment taken by the
entrepreneur from the bank. Second, dated payment obligations may not synchronize with the
firm’s cash flow. Third, payment obligations were mandatory whether or not the business was
making a profit. Fourth, security or mortgage was essential for investment. Finally, returns were
practically based on the benchmark of interest-based bank.
Dusuki and Abdullah (2007) replicated Haron et al’s study in Malaysia, and found that the
selection of Islamic banks appears to be predominantly a combination of Islamic and financial
reputation and quality service offered by the bank. Other factors perceived to be important
include good social responsibility practices, convenience and product price. Dusuki and
Abdullah (2007) also argue that Islamic bankers can no longer depend on marketing strategy of
attracting pious and religious customers who might only concern about Islamicity of financial
product. The important insights identified on the ranking of various banking selection criteria
implies the need for Islamic bank to enhance its service quality which is now considered a
critical success factor that affects an organisation’s competitiveness.
A mail survey is most suited to situations where the scheme of questions is not overly elaborate
and when the questions required straightforward and concise answers. Here it can be a very
effective method of gathering data as no other survey method can match its low cost advantage
(Jobber and O’Reilly, 1996). Furthermore, mail surveys permit recipients to consult documents
and complete the questionnaire in their own time. Answers procured may be more honest than
those obtained in a face-to-face interview, and errors such as the mis-recording of answers, non-
uniformity in asking questions, differential probing and questionnaire falsification are
eliminated.
However, a major problem associated with mail surveys is that of obtaining an adequate
response rate. The loss of sample size may restrict the range of analytical techniques that can be
used, and reduce the power of statistical testing. Another major drawback is the likelihood that
non-respondents differ in some critical ways from respondents leading to biased estimates.
RESEARCH METHODS
Research design
The research design adopted in this study was an empirical survey similar to what Ahmad and
Haron (2002) employed. The analysis of data gathered from the survey was descriptive using
simple inference statistics. The survey was conducted by mailing each prospective respondent.
This design was based on the choice of a sampling frame and availability of sources for the
research. The survey used the whole population of banks, which enabled the researchers to
ignore the problems of bias in the sampling. The whole offshore bank population consisted of 57
banks in operations as of 2006 (LOFSA Annual Report, 2006). Many of the issues in the survey
were considered ‘sensitive’ by the Labuan offshore banking community, in recognition of such
sensitivity a mail survey was selected to maintain the anonymity of respondents.
Instrument design
The questionnaire was designed based on information obtained from informal interviews with
managers of offshore banks in the offshore banking industry. As such, the questionnaire was
constructed by taking into consideration the interviews’ results. The questionnaire was later sent
to six offshore bank managers for their comments. After receiving their replies minor
adjustments were made. The questionnaire contains four major sections. The first section was
designed to gather information about the respondent’s knowledge of Islamic banking, a modified
version of that used by and published at the end of the study of Ahmad and Haron (2002). The
second section was designed to gather information on the respondents’ perceptions and concerns
about Islamic banking. The third section was designed to gather information on respondents’
level of commitment to Islamic banking. Finally, the fourth section was designed to gather
information on the viability and competitive edge of Labuan as an Islamic financial center.
Before distributing the questionnaires the researchers personally contacted the principle officers,
or where not available, the personal assistants, or secretaries via telephone, or email and they
were informed of the reasons for the research.
They were unaware about other principles such as al-Wadiah, Mudarabah, Musharakah, Ijarah,
Istisna and others used in Islamic banking. When the respondents were asked about the profit
maximization principle, five respondents were not sure, and 23 believed that Islamic banks, like
the conventional banks, must maximize their profit in order to survive in the competitive
business environment.
Twenty-eight of the respondents either chose the wrong answer, or were not sure of the answer,
thus indicating that most offshore bankers were not knowledgeable about Islamic banking. The
findings indicated that Labuan offshore bankers had confused notions regarding the practice of
Islamic banking. This perception was contradictory to the philosophy of Islamic finance, which
is the combination of both moral and profit motives.
TABLE 1
Knowledge of Islamic banking
Frequency Percent
Islamic banking is an alternative to conventional banking for
Muslims who are prohibited from associating themselves with
the element of interest.
a) True 27 75.0
b) Untrue 8 22.2
c) Not sure 1 2.8
Total 36 100.0
The profit and loss sharing (PLS) principle is the only
principle that can replace the element of interest in the
operations of Islamic banking.
a) True 22 61.1
b) Untrue 8 22.2
c) Not sure 6 16.7
Total 36 100.0
Both Islamic and conventional banks must adopt profit
maximization principle in order to survive in a competitive
market.
a) True 23 63.9
b) Untrue 8 22.2
c) Not sure 5 13.9
Total 36 100.0
These findings were consistent with those of Ahmad and Haron (2002), and Hassan and Ahmed
(2002). The findings of Ahmad and Haron (2002) were anticipated expected since 80% of the
respondents were non-Muslims. However, the results of the study conducted by Hassan and
Ahmed (2002) were surprising since the respondents were predominantly Muslims.
TABLE 2
Reasons for selecting Islamic banking
Frequency Percent
Strictly religion 2 5.6
Economics 13 36.1
Religion and economics 19 52.8
No idea 2 5.6
Total 36 100.0
Respondents were asked to give their opinions in terms of “true, untrue, and not sure” regarding
the statement ‘Islamic banking products are similar to those of conventional bank, except that
Islamic banks use different names’. The findings are depicted in Table 3. Nineteen of the
respondents believed that Islamic banking products were similar to that of conventional banks,
12 disagreed with the statement, and five were not sure. These findings were consistent with that
of Hassan and Ahmed (2002), where 200 bankers and 200 bank customers in their samples could
not differentiate Islamic banking products from those offered by conventional banks.
TABLE 3
Same as conventional banking
Frequency Percent
True 19 52.8
Untrue 12 33.3
Not sure 5 13.9
Total 36 100.0
Operational complexity of Islamic banking
During informal interviews offshore bankers have raised their concerns regarding the operational
complexity of Islamic banking, and four of the main concerns are listed below:
i. Islamic banking makes lending structure complicated;
ii. Islamic banking turns banks to non-voting equity holders;
iii. Islamic banking makes risks mitigation complicated; and
iv. What are the roles of the Shariah court in civil disputes between customers and banks?
The respondents were asked to indicate against the four concerns in terms “strongly agree” (5),
“agree” (4), “neutral” (3), “disagree” (2), and “strongly disagree” (1). The findings are shown in
Table 4. The main concern of the respondents was that Islamic banking makes lending structure
complicated (mean = 3.50).
TABLE 4
Offshore bankers concerns about Islamic banking
The respondents second main concern was that Islamic banking turns banks to non-voting equity
holders (mean = 3.33). The third main concern was Islamic banking makes risks mitigation
complicated (mean = 3.31). That the Shariah court interferes with civil disputes between client
and banker (mean = 3.03) was not a major concern to the respondents. These findings reflected
the concerns of the International Monetary Fund (IMF) with the profit-and-loss-sharing (PLS)
modes:
In practice, PLS modes make Islamic banks vulnerable to risks normally borne by equity
investors rather than holders of debt (Sundarajan and Errico, 2002, p. 4).
These findings indicated that Labuan offshore bankers perceived Islamic banking lending as a
cumbersome process that involve extra risks, and require extra skills and resources. Unless there
are extraordinary benefits derived from these transactions they would not be likely to participate
in future Islamic financing.
These findings concurred with the industry’s records. Some interviewees conceded that the
issuance of the Malaysian government USD600 million dollar Islamic bond (Malaysia’s
Sovereign Sukuk), the world’s first Islamic sovereign bond dubbed by Euromoney as ‘Best Asian
Sovereign bond’ (LOFSA Annual Report, 2002), was not well received by the offshore banks.
Despite its sovereign risk, and all the publicity and accolades received from several international
publications only eight of the 57 offshore banks participated in the deal, and the remaining 45
banks did not subscribe at all. However the willingness of 17 offshore banks to train more of
their officers in Islamic banking skills, and the readiness of 20 more to participate in future
syndicated Islamic credit facilities and debt securities offered an encouraging sign for the
liquidity of Islamic banking products and services in Labuan.
TABLE 5
Liquidity of Islamic banking products and services
Frequency Percent
Does your bank provide Islamic banking products
and services?
a) Yes 7 19.4
b) No 29 80.6
Total 36 100.0
Does your bank have enough officers who are
skilled in Islamic banking?
a) Yes 7 19.4
b) No 29 80.6
Total 36 100.0
Would you train your Labuan officers in Islamic
banking skills?
a) Yes 17 47.2
b) No 12 33.4
c) N/A 7 19.4
Total 36 100.0
Would your bank participate in future syndicated
Islamic structured credit facilities and bonds?
a) Yes 20 55.6
b) No 9 25.0
c) N/A 7 19.4
Total 36 100.0
TABLE 6
Viability of Islamic banking as a niche
TABLE 7
Labuan advantages over London and Bahrain
Frequency Percent
Yes 11 30.6
No 25 69.4
Total 36 100.0
The respondents were further asked to rank the competitive advantages of Labuan as an Islamic
financial center against Bahrain and London on a Likert-styled scale, 1 (least competitive), 2
(somewhat competitive), 3 (competitive), 4 (very competitive), and 5 (most competitive). A list
of 12 attributes was provided as shown in Table 8. The major attributes that the respondents
considered to be advantages for the IOFC in competing against Bahrain and London were
political stability (mean = 3.89), low taxes (mean = 3.79), bank secrecy law (mean = 3.59), and
reliable legal system (mean = 3.57). Central banking policies, reputations, minimum exchange
control restrictions, ideal time zone, market liquidity, geographical location, skilled workforce,
and physical infrastructure were not considered as the competitive advantages of Labuan.
The overall mean of 2.68 for all the attributes indicated that Labuan does not have the
competitive advantages over Bahrain or London. However, a positive sign is that Labuan has
four major attributes that will be helpful in its development as an offshore Islamic financial
center. These attributes are political stability, low taxes, bank secrecy law, and a reliable legal
system. On the other hand, Labuan has four ‘low’ attributes that could impede its chances when
competing with Bahrain and London in Islamic financing. These are physical infrastructure
(mean = 1.79), skilled workforce (mean = 1.94), geographical location (mean = 2.09), and
market liquidity (mean = 2.09).
TABLE 8
Attributes of Labuan as an Islamic offshore financial center
The findings on the ‘low’ attributes of Labuan, especially the physical infrastructure and
geographic location were consistent with the outcome of a recent random survey conducted by
the Business Times. Among the problems cited were the unavailability of direct flights from the
major cities in the region, and the unreliability of water and electricity supplies (Business Times
17 Jul. 2004, p. 1).
There are three major managerial implications of this study: the need to enhance knowledge and
expertise, the need to be innovative and creative, and the need to improve the physical
infrastructure to overcome the location disadvantage of the Labuan IOFC.
Firstly, with regard to the enhancement of knowledge and expertise regular seminars and
workshops should be held to expose conventional bankers to Islamic banking principles and
practices, as well as build competence among officers. Seminars will provide avenues for Islamic
banking concepts and principles to be discussed. For senior managers these are good
opportunities for them to understand the concepts and principles of Islamic banking. On the other
hand workshops would helpful to officers who are directly involved with the structuring and
transactions of banking products in developing their competence and expertise. The
establishment of an industry-owned Islamic Banking and Finance Institute Malaysia (IBFIM) in
2001 to provide training and education, advisory and consultancy, and research and development
(IBFIM, 2004) was a positive step in the enhancement of expertise of individuals in the Islamic
banking industry.
Secondly, as for innovation and creativity the offshore bankers in Labuan were accustomed to
creditor-debtor relationships between banks and customers in conventional banking, and viewed
the lending structure of Islamic banking and its implication on risks mitigation as cumbersome.
In order to convince them to commit their time and resources Islamic banking products and
services must be seen as value-added. Again, the research and development function of the
IBFIM should be helpful in this area. Innovation should also include the area of taxation. Bank
Negara’s master plan has already provided a basis for the ‘formulation and amendments to tax
policies to take into consideration the impact on Islamic banking to avoid creating barriers in
adopting Islamic banking concepts’ (BNM, 2001). The creation of such a favorable tax regime
should have a substantial impact in terms of increased profit margin or reduced cost on the part
of the offshore banks.
The central bank’s master plan has also called for an increase of number of Islamic players, by
inviting financial institutions from the Middle East to set up operations in Labuan. However,
three years after the implementation of this master plan the outcome has not been encouraging.
So far only one Islamic investment bank from Saudi Arabia has set up operations in Labuan. To
build the critical mass of players and market participants other creative non-tax related incentives
should be offered to the conventional offshore banks currently operating in Labuan.
Finally, there is an urgent need to improving the physical infrastructure and overcoming the
location disadvantage of Labuan. At present Bahrain and London are leading centers in Islamic
finance, and the results have shown that Labuan does not have competitive advantages over these
centers. Two major setbacks cited were poor physical infrastructure and Labuan’s inherent
location disadvantage.
Some physical attributes such as more reliable of water and electricity supplies and air
accessibility can be created but these will be subject to market reality. Bank Negara’s master
plan recommended that Labuan have an ‘open sky’ policy to encourage direct flights from
Singapore, Hong Kong, Tokyo, Taipei, Seoul, Manila and Jakarta to Labuan. This would raise
the air accessibility of Labuan to the level of Kuala Lumpur, Bahrain, and to some extent
London. However, three years since the master plan was adopted no airline has established any
direct flight from these regional capitals to Labuan, airlines will only fly to specific destinations
based on market reality, that is, if they can profit from such operations.
Obviously, raising the standard of Labuan to that of Kuala Lumpur, in order to be able to
compete with Bahrain or London would not be practical. However, the concept of twinning
Labuan with the Multimedia Super Corridor as recommended in Bank Negara’s master plan
would be worth further examination. This concept would automatically allow Labuan to utilize
the attributes of Kuala Lumpur to compete against Bahrain, and to a smaller extent London. The
problem of the lack of air accessibility and poor physical infrastructure would thus be resolved.
CONCLUSION
The research has provided some support towards the implementation of Islamic banking as a
niche for the Labuan IOFC. Offshore bankers are willing to train their officers in Islamic
banking and participate in future Islamic transactions. Their participations would provide the
critical mass to the Labuan IOFC, thus increasing the market liquidity of the Islamic banking
products. Besides, Labuan is strong on four major attributes, political stability, low taxes, bank
secrecy law, and a reliable legal system. These attributes and Malaysia’s substantial experience
in Islamic banking would give Labuan a starting point in developing as an international Islamic
financial center.
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