Island paradise is an offshore centre with an attractive environment for investors
Labuan, off Eastern Malaysia, has steadily built its reputation as an attractive global funds destination in the Asia-Pacific region

When Labuan International Offshore Financial Centre was first established in 1990 on an island off the Eastern Malaysia shoreline it had about 500 companies on its books. Since then the number has increased to approximately 6,000.

“It shows the effectiveness of having a one-stop agency,” says Dato’ Azizan Abdul Rahman, Director General of Labuan Offshore Financial Services Authority (LOFSA), the state authority charged with ensuring that Labuan IOFC remains both competitive and transparent.

One of Malaysia’s three federal territories, Labuan has over the past decade implemented policies that have succeeded in creating an attractive environment for outside investors, and as a result the offshore centre has prospered.

The legislative framework is not only business-friendly but also prudent, safeguarding the island’s international image as a clean and reputable offshore financial location. In recent years, as more stringent global financial rules have been imposed, maintaining this reputation has been a top priority.

Designed to complement the domestic financial markets in Kuala Lumpur, Labuan has evolved into an integrated financial centre providing a wide range of products and services to customers around the world. These include banking and investment services, insurance, captives, trust business, fund management, company management and Islamic financing, one of the fastest growing finance niches in this part of the world.

Dato´ Azizan Abdul Rahman Director General of Labuan Offshore Financial Services Authority

Mr Dato’ Azizan believes that innovation has enabled Labuan to maintain its leading edge. “LOFSA has diversified the offshore business activities of Labuan IOFC by introducing capital market activities, leasing, Islamic financial services and new business vehicles such as limited partnership and the Labuan International Financial Exchange (LFX),” he says.

Financial instruments issued out of Labuan can be listed on the web-based LFX, which has been particularly successful in attracting shariah-compliant products. As of July 2007, there were 33 listed instruments – nine of them shariah-compliant – with a market capitalisation of $4.45 billion, representing 30 per cent of the total market capitalisation.

A significant recent development was the $1 billion listing on the last year of the first Saudi corporate sukuk – the Islamic equivalent of a bond. The LFXSukuk Al-Ijarah, issued by Saudi Arabia’s Dar Al-Arkan International Sukuk Company, was also the largest in terms of value ever to be listed on the exchange.

According to Mr Dato’ Azizan, these issues show Labuan to be a genuine candidate for all kinds of funds entering the Asia-Pacific region. Labuan IOFC, he says, offers convenience, efficiency and cost competitiveness all in one, all backed up by a solid regulatory set-up in the shape of LOFSA.

“Labuan can provide UK companies with a unique opportunity for tapping investment in the rapidly growing Asia-Pacific region,” he says. Moreover, they could leverage Malaysia’s strategic location between the growing economies of China and India, and close ties with the Arab states of the Gulf Cooperation Council (GCC), to expand their business.

Labuan’s competitive cost profile is another major draw, together with Malaysia’s political stability. The island is easily accessible and shares the same time zone as many other major Asian cities. A first-class infrastructure is in place, and other amenities, such as office space and accommodation, are also available at reasonable rates.

The natural beauty of the island is another attraction. “Labuan is not only a financial centre but also an excellent location for leisure such as diving, fishing and other sea activities,” says Dato’ Azizan.