Mahathir Backs Islamic Finance In Korea

By Alastair Gale Available at: http://blogs.wsj.com/korearealtime/2011/02/24/mahathir-backs-islamic-finance-in-korea/?mod=google_news_blog

Former Malaysian Prime Minister Mahathir bin Mohamad voiced support Thursday for an attempt by South Korea’s finance ministry to kickstart the growth of Islamic finance in Korea, saying “it’s not about religion.”

Back in 2009, Seoul aimed to launch a local Islamic bond, or sukuk, market in order to diversify funding sources for companies by tapping into capital from Middle Eastern investors and others with an interest in Shariah-compliant financial products. Key to getting the project off the ground was legislation that would provide the same tax breaks for sukuk as for traditional bond issuance.

That legislation ground to a halt in committee late last year under objections from lawmakers and South Korea’s powerful Christian lobby, both of whom cited cultural and religious conflicts, and said tax benefits for sukuk would be unfair. Christian groups also raised objections to the standard practice of payment of some of the proceeds of sukuk deals to the poor, saying it could funnel money to terrorist groups.

The finance ministry says the objections are down to misunderstandings about Islamic finance. It is making another bid to pass tax legislation during the current National Assembly session. The prospects for success are unclear, but Mr. Mahathir backed the growth of Islamic finance in Korea, saying it would be good for the development of the nation’s banks.

“There’s no reason why countries should reject Islamic banking. It’s not about religion, it’s about using banks,” he said on the sidelines of a conference in Seoul.

“It should be a privilege for all banks,” he said.

Malaysia is the world’s biggest issuer of sukuk, followed by Saudi Arabia.

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ZULKIFLI HASAN