Masterplan of the Labuan International Offshore Financial Centre

Background

Labuan was declared as an International Offshore Financial Centre (IOFC) in October 1990 to complement the activities of domestic financial market in Kuala Lumpur, and strengthen the contribution of financial services to GNP in Malaysia as well as develop the island and areas within its vicinity.

Specifically designed legislation and regulations, primarily based on experiences of other IOFCs around the world, provide the framework for business in the IOFC.  Combined with a flexible and favourable tax treatment and low cost of setting up and operating in the IOFC, this framework has succeeded in attracting substantial numbers of international businesses to domicile in Labuan, including 60 world leading banks, 68 insurance and insurance-related companies, and 20 trust companies.  These institutions conduct the core businesses of the IOFC.

Of significance is that the players in the IOFC come from a highly diversified country of origin, reflecting growing global awareness as well as recognition and acceptance of the IOFC as an attractive, viable and cost-efficient financial centre.

The IOFC operates in a rapidly changing and increasingly competitive marketplace. Its business environment and business rules of the game have continuously evolved to become more business friendly.  With the rapid advancements in information technologies, business strategies are now changing and geographical location is no longer a major deciding factor.

The ability of the IOFC to remain competitive depends heavily on its innovative capability, efficiency and market orientation. The IOFC and its players must stay forward-looking and agile in the new financial climate as well as constantly promoting new business solutions and technologies such as efficient delivery channels. Of importance, to enhance the IOFC growth prospects, is the collaboration and smart partnership between the government and the private sector to drive this process.

While the IOFC’s regulatory framework is favourable and market driven, it is balanced with prudential requirements in line with accepted international regulatory practices and standards. The regulatory regime places strong emphasis on the preservation of its reputation as a credible centre, free of undesirable activities.

In the early years of the IOFC, the strategic focus was on attracting the critical mass of core and top players that can provide services and products to investors investing in this region.  The quality and reputation of the players have been instrumental in the shaping of an active and clean offshore industry in the IOFC.  Having succeeded in this, the thrust is now to build on the strength and expertise of the existing players, and encourage proactive expansion of the scope and breadth of services and products in the IOFC.

The efforts to attract more players to the IOFC will continue. The increase in the number of players in addition to the banks, insurance companies, trust companies, Islamic institutions are other support service providers such as legal and accounting firms.  This is also important to generate further expansion in economic activity for the island. In attracting new players to the IOFC, target groups should be identified.  The overall development of Labuan, however, cannot rely on just the offshore financial services industry. Labuan needs to develop other complementary industries such as tourism, manufacturing industries and education.

Vision and Objectives

The IOFC in the future is not only a centre that thrives on the offshore financial services, but also one, which is developed holistically to support the development of the island, and plays an effective complementary role to the domestic financial market.  Several areas can be further developed in the IOFC.  These include enhancing the Islamic banking business with the establishment of an international Islamic financial market as well as developing the banking and insurance sectors to become a significant regional hub while taking the lead in retakaful business.  The recommendation to set up a financial exchange and electronic commerce facilities has now been implemented.  Labuan is also now being promoted as a meeting and conference centre in addition to tourism to enhance the development of Labuan as an IOFC.

Recommendations

The ensuing recommendations are made in three main areas as follows:

1. Promote and diversify further the financial players and activities in the IOFC;
2. Promote the development of Islamic banking and retakaful business; and
3. Develop and strengthen the capital market, e-commerce and the ancillary activities.