Banking in Brunei operates in a financial world where conventional capitalism sits side by side with an Islamic system that avoids usury or interest.
The sultanate, where the majority of 250,000 inhabitants are Muslim, has ambitions to become an international financial centre. It plans to do so by excelling in both Islamic and conventional banking.
Brunei has been keenly promoting Islamic banking as an alternative to conventional banking during the past decade. There are three Islamic financial institutions in the country: the Islamic Bank of Brunei (IBB), Tabung Amanah Islam Brunei (TAIB or Islamic Trust Fund of Brunei) and Islamic Development Bank of Brunei (IDBB).

The latter, wholly owned by the government, converted to the Islamic system late last year. At the time, the Sultan Haji Hassanal Bolkiah said: “It is a milestone for our country and will become much more significant in proportion to our status.
“We are confident that our way of doing business will be widely accepted by the world at large. This is not only because it brings profits but it also offers fairness and at the same time prevents exploitation.”
To help people understand the Islamic system of banking, the government’s State Mufti Department published a book on ‘monetary issues’.

Earlier this year, a working capital credit fund was launched with the objective of injecting liquidity into Brunei’s economy to stimulate industries, especially small and medium-sized enterprises (SMEs), which are considered the main plank for economic growth. In the past, SMEs complained that the banks were reluctant to give loans.
Eight commercial banks – including the three Islamic banks – are supporting the fund in a joint effort with the government, which offers low interest not exceeding four per cent a year. The main principle of the scheme is that all of its loans are commercial ones, subject to terms and conditions of each participating bank.
Haji Abu Bakar, chairman of the Islamic Bank of Brunei (IBB) says the number of Islamic banks has grown tremendously over the last 30 years but there are still questions and challenges to be resolved. “The greatest challenge is to demonstrate that the Islamic principles in banking and finance are practical and suitable in daily lives.”

Established in 1993, replacing the International Bank of Brunei, the IBB conducts its savings and loans operations in accordance with Islamic law. Eighty per cent of its paid up capital is owned by the Sultan Haji Hassanal Bolkiah and his family, with the balance held by Japan’s Daiichi Kangyo Bank.
Meanwhile, Tabung Amanah Islam Brunei, TAIB, which operates under a banking licence, is revamping its image. A new chairman recently took over and the focus is on customer service.
The foreign banks in Brunei are highly competitive. HSBC, for example, has just introduced an ‘advanced home loan simulator’ to help customers to obtain a mortgage. Earlier this year, the HSBC introduced the first secure message service, enabling clients to access their bank accounts via their mobile phones.

“We have a made a lot of investments in Brunei over the past 54 years and I am glad to say that we are continuing to invest because we see this as a country that is going to grow,” says Warner Manning, HSBC’s chief executive in Brunei. “The new economy here has a long way to go. But then it is all relative and if you take a snapshot of the other Asean countries, Brunei is by no means at the bottom of the list.”
Mr Manning says that in some quarters the idea of Brunei as an offshore centre is slowly beginning to grow. But the authorities are taking a cautious approach because they do not want the sultanate to be associated in the same category with some dubious tax havens elsewhere in he world.
“The first message for Brunei is that they want to get on the best list,” he says. “The country has some good things going for it.

“First, they have done a great job putting together the legislation. Second, they have done a very good job in adopting best practice in the banking industry.
“So, they are doing all the right things here and now they need to sell it.”