An international Islamic financial centre : a comparative functional perspective between Malaysia and Singapore

Abstract

In the formation of an international financial centre (IFC) literature, the government’s role is recognised as imperative in ensuring that several initiatives are implemented to achieve the objective as an IFC. Writers and researchers alike have adopted several approaches in gaining insights to this area of research varying from the historical, teleological and geographical to the functional perspectives. This exploratory study employed ideas and thoughts based on the functional perspective that has identified four functions of an IFC such as Payment and Settlement, International Financial Intermediation, Risk Management and Fund Management. These four functions were then measured together with four other functions to resemble an Islamic character of an IFC, namely, Shari’ah Advisory Supervision, Financial Regulation, Credit Worthiness Management and Human Capital Management. Empirical results of the data obtained from the survey of questionnaires on perception of senior executives and managers working in financial institutions in Malaysia and Singapore showed that the factor analysis has reduced the data from eight functions to only six reliable and valid functions. Data obtained from these six functions were used for hypotheses testing and statistically significant results of the hypothesis testing were then verified and affirmed with qualitative analysis from the investigation of documentary sources and secondary statistical data obtained from reliable and relevant bodies in Malaysia and Singapore. Most importantly, results of the data analysis have revealed two most significant research findings. The first finding suggests that the six functions reduced from the factor analysis were reliable and valid to be the underlying functions that an IIFC must provide. The second finding suggests that Malaysia was perceived by senior executives and managers to be more competitive than Singapore as the centre of Islamic finance. Therefore, these research findings can be used as an impetus for future research on the possibility of introducing a new International Islamic Financial Centres Index (IIFCI) that is highly tenable to attain the same status of credibility and reputation of the mainstream Global Financial Centres Index (GFCI).