LABUAN IOFC 1) Historical Background 2) Development of IOFC 3) Economic Significance 4) IOFC Challenges 5) Recommendations 6) Future Prospects

1. IOFC LABUAN: HISTORICAL BACKGROUND
 Labuan International Offshore Financial Centre (IOFC) was formed on 1
October 1990.
 This is by looking at the rapid economic growth in the ASIAN region
at that period and the needs for Malaysia to develop its financial market
and diversify of the economy.
 Labuan IOFC have been form dwi-pronged goals of complementing
and developing Malaysian capital market.

2.  Since Labuan is a free port, there is no sales tax, surtax, excise or
import and export duties levied, except for duties on petroleum and
petroleum based products.
 The government choose Labuan to become an IOFC because a
strategic geographic, situated in the middle of Asian regions and
is easily accessible by air.
 Labuan is also located in the heart of Asia Pasific region, one of the
most economically thriving regional in the world with benefits
from the fast growing economics in the region.
 Since Labuan birth as an IOFC in 1990, its has attracted about 1,000
offshore and support companies.

3. LABUAN IOFC: DEVELOPMENT OF OFFSHORE BANKING
BUSINESS
 Application to carry out banking business in Labuan IOFC can be made
to the Minister of Finance through the Labuan Offshore Financial
Services Authority (LOFSA).
 All functions under the jurisdiction of Bank Negara Malaysia,
Register Company and Securities Commission have been
transferred to LOFSA.
 LOFSA was set up to spearhead and coordinate efforts to promote
and develop Labuan as an IOFC.

4.  The activities that involved by offshore banking are accepting deposits
from individual, companies and legal business entities in major trading
currencies, credit facilities such as medium term advances, project
finance, standby letter of credit, bank guarantees and
performances bonds, loan syndication, fixed term loan and others.
 They also provide the services from offshore investment bank such
as financial advisory and consultancy services, foreign exchange
trading facilities in both spot and forward market, providing debt
financing and market and credit research on regional market.

5. LABUAN: ECONOMIC SIGNIFICANT
Types of significant Explanations
Offshore Trust Fund Management
- Controlling the management of investment portfolio and providing advisory
to fund management thru terms and condition of fund management license
- The company must be ‘fit and proper’ of their operate fund management so
that no adverse report can be done.
Offshore Insurance & Insurance
Related Business
- Malaysian Government to speed and increase the captive insurance business
regulation and increase in capital requirement under Offshore Insurance
Companies Act in 1997
Tourist Centre & Health Plus
Convalescence Resort
- Promoting tourism industry in Labuan would have positive spill over effects
on the local economy and the offshore industries.
- Labuan as a retiree paradise is in line with the planned building of an 18-hole
golf course and retirement homes.
Centre Of Educational Excellence
- Encouragement to set up local and foreign learning institutions branches on
the island. (UMS-KAL)
- Training institutions such as the BIMB Institute of Research and Training
(BIRT) could also provide valuable input in designing the syllabus for Islamic
banking studies

6. Types of Challenges Explanations
Attract threat of doing crimes
- Be an attraction for potential criminals to launder their
money
Bank Negara Malaysia (BNM)
came up with conservative idea
- Keeps tight and strict currency regime and stifling
natural market for an asset management using local
funds.
Financial crisis in Labuan as
financial offshore
- The impact turns out many loans into non-performing
loans (NPLS) which can reduce the credibility of financial
centres
Investors have criticisms the
legality of bay’ al-inah and bay al-
dayn
- Most Islamic investors stay away from Labuan as the
trading of bay al-inah and bay al-dayn are found
unacceptable from majority of ulama’ and the contract are
similar to riba in term of financing
LABUAN: IOFC CHALLENGES

7. LABUAN: RECOMMENDATIONS
By slowing the development of the IOFC; so it
would develop into a solid and sound IOFC
 Banking community’s action in preventing criminal
abuses
 IOFC should be compelled enough to show the
true owners of the money
By forming a unit to gather intelligence and
conduct specialised investigation
 The purpose: to ensure an effective response to the
threat of crimes, i.e. money laundering
 Strengthen the Labuan IOFC anti-money
laundering system
By learning from Deutsche Bundesbank;
in the effectiveness in controlling the financial
activity which is due to its ability to be consistent &
trustworthy in its policies and implementation
Dig deeper into the Shariah aspects of bay’ al-
inah and bay’ al-dayn financial operations
• In order to earn supports from rich countries
Strengthen Islamic banking and finance as well
as takaful

8. As there are no other IOFCs nearby in order to cater to the needs of neighbourhood countries, it
could be either a pull or a push factor for investors.
LABUAN: FUTURE PROSPECTS
 Labuan will launch its Development Action Plan in 2017 to attract more investors; in
the tourism and education sectors
 Recommendation to invite recognised universities to open branches in Labuan as Labuan
has the IOFC status
 Labuan will be a financial centre, a logistics, oil and gas hub, as well as a tourism and
education centre
 The easing of entry requirements for the top 200 banks in the world is also one of
Labuan IOFC’s future incentives
 Tax rebate of 65% given to trust companies and 50% tax rebates to expatriates will be
extended to another 5 years once it expired in 2000.
 Other tax exemptions would be on ‘second-tier’ dividends and stamp duty on shares and
filing works.

9.  Attract more foreign Islamic banks (Middle East) to open branches; providing
creative opportunity for investment and retail products
 Malaysian Islamic Banks are providing creative opportunity for investment & retail products as an
alternative to the conventional banks
 Implement measures to assist the development of takaful business, including promoting new
products such as takaful capative
The Future Prospect Regarding the Growth of Islamic Financial Instruments
 Introducing Amanah Dar al-Maal al-Islami Labuan (ADIL); Islamic growth fund
that recognized by Dar al-Maal al-Islami (DMI) Trust Group
 PURPOSE: To initially attract Muslim countries in Asia as well as the Middle East countries
subsequently
 ADIL will only invest in halal business and the activities of ADIL are monitored by international
sharia counsel DMI