Wednesday, July 6, 2022
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Chinese digital bank plans Sukuk as it eyes a slice of Islamic finance pie

Baxian Private and Investment Bank in May 2021 received formal approval from the Labuan Financial Services Authority (LFSA), the regulator of the Malaysian offshore center Labuan, to operate as a full deposit-taking digital bank offering Shariah compliant services.

“Baxian will open its doors to customers towards the end of the year and we plan to offer Sukuk and tap into the Islamic finance market.

“With the recent signing of an MoU between the Labuan International Business and Financial Centre (Labuan IBFC) and the Qatar Financial Centre Authority to facilitate the mutual recognition of financial entities, we intend to redefine the delivery of cross-border digital Islamic banking services for ultra-high-net-worth (UHNW) families in the Middle East,” David Chong Kok Kong, the founder and president of Baxian, opines.

While Baxian intends to focus its initial buildout efforts in private banking, the license issued under Section 88 of the Labuan Financial Services & Securities Act 2010 will allow the bank to offer a full suite of services to its UHNW clients, including corporate advisory, asset and wealth management, sales and trading, and working capital solutions — including lending, project finance and trade finance.

Meanwhile, the bank will defer to the Shariah councils of the partners it is working with to make sure that its offerings are fully Shariah compliant.

“We see the Islamic finance market as a huge opportunity to diversify. A lot of the Middle Eastern trade is US dollar-based. There are risks in being heavily reliant on the US dollar although it dominates approximately 80% of trade today.

“And we know that the Middle East trades a lot with China which is now introducing the renminbi (RMB). We have been indirect participants in the trial of renminbi trade, so if we are able to provide some of our Muslim clients from the Middle East with RMB-based facilities when it becomes fully available, that in itself would be a huge profit especially in the oil and gas market,” Chong explains.

As a mid-shore jurisdiction and one of Asia’s key digital innovation centers, Labuan enables freedom of currency and convertibility, backed by a fast-growing Malaysian economy. Labuan also provides a robust legal and regulatory landscape for financial institutions to provide a comprehensive suite of Islamic financial services.

According to Labuan IBFC’s 2020 market report, there are 20 active banks in Labuan offering Islamic financial services.

Data from the report indicated that the total financing of the Labuan Islamic banks decreased by 22.6% to US$1.5 billion (2019: US$1.9 billion), while the total Islamic deposits increased by 8.5% to US$183.1 million (2019: US$174.2 million) for the year 2020.

Baxian was approved as an investment bank in 2017 and submitted an application for a full digital bank license in April 2020 but it was delayed as the LFSA was coming up with the Labuan digital banking framework which was only formalized in December 2020.

Chong, who is also the founder and president of Portcullis Group, an independent trust, fund and family office service provider in Asia, aims to deliver a seamless financial services proposition to UHNW families in the region.

Baxian is currently working with a number of partners to build its new banking proposition, including Mastercard, and has been invited to be an indirect participant in the cross-border interbank payment system. This will allow Baxian to facilitate cross-border transactions and act as a correspondent RMB clearing bank, while providing it with the ability to trade in US dollars.

Baxian intends to list its shares as digital assets on the Fusang Digital Exchange, also licensed in Labuan, by the end of 2021.

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