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Thailand: An Opportunity for Islamic Finance?

Despite the introduction of an act relating to Islamic finance in 2002, the industry in Thailand has seen little developmental progress over the years, due to minimal support from the Thai government for a comprehensive legislative and regulatory system for the sector. As the country’s sole Islamic bank, the Islamic Bank of Thailand, recovers from a particularly tumultuous 2013, Rebecca Simmonds explores the current condition of Thailand’s Islamic finance offering.

Legal and regulatory

Islamic finance has been present in Thailand in some form since 1987, when the Pattani Islamic Saving Cooperative was established to manage funds in southern Thailand, which were worth THB90 million (US$2.75 million) in assets at the end of 2001. By the end of 2001, four other Islamic saving cooperatives has been introduced in the same region: Ibnu Affan Saving Cooperative, As-Siddiq Saving Cooperative, Saqaff ah Islam Saving Cooperative, and Al- Islamiah Saving Cooperative.

The Government Savings Bank utilised an Islamic window to provide Islamic banking products and services for the country’s four million Muslims (around 6% of the total 66.8 million population), along with the Bank for Agriculture and Agricultural Cooperatives. In 2001, KrungThai Bank opened an Islamic branch just prior to the introduction of the Islamic Bank of Thailand Act which was instituted in 2002, paving the way for the establishment of the state-owned Islamic Bank of Thailand the following year.

As early as 2010, the Thai government stated that a regulatory framework regarding tax issues for a sovereign Sukuk, called the Trust Act, would be put in place however this has not materialised and the regulations for Islamic finance as whole still remain fragmented. Currently the country’s only Shariah compliant bank, the Islamic Bank of Thailand, is prohibited from investing abroad; limiting its scope to
Shariah compliant investment options within Thailand.

Banking and finance

The Islamic Bank of Thailand (IBank) has acquired the Islamic banking windows of the Government Savings Bank (GSB) and Krung Thai Bank (KTB) making it the only bank to offer Shariah compliant banking products in the country. The Ministry of Finance owns a 49% direct stake in IBank and also has stakes in shareholders KTB, bringing its combined ownership of the bank to 98%. In May 2013, the bank’s non-performing loans reached 20% of its lending and the country’s Ministry of Finance approved
a THB6 billion (US$185.3 million) fund to recapitalise the bank, with THB3 billion (US$92.6 million) provided by the ministry itself and shareholders GSB and KTB providing the remainder.

In June 2013 IBank announced plans for a capital increase of THB7.11 billion (US$217.33 million) and the issuance of a THB5 billion (US$152.83 million) Sukuk, which would be the country’s first, to aid the bank’s capital-raising plans. IBank’s previously stated plans for a Sukuk included the naming of CIMB Bank Malaysia as the arranging bank, with investors in Hong Kong and Malaysia targeted for the proposed five-year issuance. However, no issuance has yet been forthcoming.

In February 2014, the bank issued results of an unaudited profit of THB2.7 billion (US$82.53 million) for the financial year 2013, a marked increase on the loss of THB13.25 billion (US$405.02 million) the previous year, as a result of an overhaul of its bad debt portfolio and increases in deposits and small business lending. Along with the results, the bank stated that it aimed to increase loans by THB20 billion (US$611.34 million) and deposits by THB25 billion (US$764.18 million) in 2014. IBank has a branch network of 106, as of February 2014, with plans to expand to the Middle East within the next three years, and grow its domestic network from 106 branches to 130.

In June, the bank signed an MoU with three insurance companies — Thai Life Insurance, South East Insurance and Muang Thai Life Assurance — to promote its Takaful offering, with predicted combined contributions of THB500 million (US$15.28 million) for IBank by the end of the year, whilst the fee income from selling products to the three insurance companies is expected to reach THB30 million (US$917,016).

Shariah compliant index

The FTSE SET Shariah Index was launched by the Stock Exchange of Thailand (SET) and the FTSE Group in April 2009 and is reviewed in June and December. The index is comprised of 86 companies with Shariah compliance is assessed by rating debt ratio limits measured as less than 33.33% of total assets, and total interest and noncompliant activities income should not exceed 5% of total revenue. Industrial goods and services, construction and materials and real estate are the categories with the most constituents; financial services were not represented on the index at all as of 31st May 2014.

Challenges and opportunities

The introduction of the ASEAN single market in 2015 has been hailed as an opportunity for the development of the Islamic finance industry in Thailand and a chance to introduce foreign Islamic banks to the country to meet both the needs of the indigenous Muslim population and those of the predicted number of Muslims to visit the country, as a result of the establishment of the single market. Calls have been made by politicians, practitioners and academics alike for a greater understanding of Muslims to be cultivated in general and a greater understanding of Islamic finance in particular, to make the most of the opportunity.


Islamic finance education and the gamut of Islamic financial options could be welcomed in this largely untapped market although the necessary changes to the regulatory framework to create an even playing field for Islamic finance structures would be a key step indicating that the government is actually willing to make the commitment to the further development of the country’s Islamic finance provision.


This article first appeared in Islamic Finance News (18 June 2014, Volume 11, Issue 24, Page 26). For more information, please visit