The Korean Financial Supervisory Commission (FSC) first announced its plans to change the country’s regulatory framework to accommodate Islamic finance in August 2008. The following month the FSC and the Financial Supervisory Service (FSS) became observer members of the Islamic Financial Services Board (IFSB).

One of the key issues to be resolved is the status of Sukuk in the domestic market. However, the chaebols (Korean conglomerates), including Lucky Goldstar, Hyundai and Daewoo, have been accessing commodity Murabaha facilities through the London financial markets since the 1980s.

FSS Governor Kim Jong-Chang admitted in January to the audience at the first Islamic finance seminar to be held in the country, “Korea is very interested in making use of Islamic finance to overcome the global credit crunch.”

Dr. Jun Kwang-Woo, Chairman of the FSC, delivered opening remarks by the country’s President, Lee Myung-Bak. Among the comments attributed to the President he said, “What we would like to see is significantly expanded capital flows and financial services between Korea and Islamic countries in addition to the trade of goods that have benefited each other so much over the past several decades.”

Governor Kim noted that, “It took even well-developed markets about a decade or so to adopt Islamic banking, and local [Korean] financial institutions and businesses are only beginning to take the first step. So our initial focus will be on building the necessary legal and regulatory frameworks as well as market infrastructure. In this endeavor, we intend to look to the experiences of other countries for guidance on what works best.

“Further down the road, I believe there are steps we can explore—such as encouraging the growth of home-grown Islamic banking practitioners—to support Islamic banking at home.

“With the right preparation, I believe Korea can become an attractive marketplace for Shari’ah-compliant investment. For investors, it can mean safe and potentially unmatched investment opportunities in Korea’s high-tech sector and world-class industrial companies. For local companies, it will mean steady, globally competitive source of capital that fuels innovation and value generation at home.

“The fact that Korea—the world’s thirteenth largest trading economy—is only beginning to take its first step into Islamic finance bespeaks, I believe, the enormous potential ahead for Islamic financial services industry to emerge as a key linkage to global finance.”

Korea Exchange, Bursa Malaysia tie-up
On 10 March 2009, Bursa Malaysia’s new electronic bond trading platform went live. The new platform, which is based on the Korea Exchange’s bond trading system, allows dealers to match bids with offers, negotiate deals and access historical data through a common computerised network.

Bursa Malaysia had signed a deal with Korea Exchange in November 2008 to develop the infrastructure for the Commodity Murabahah House (CMH), an international spot commodity platform operating under Shari’ah requirements.

At the time the deal was signed, Chang Ho Lee, President of Korea Exchange said, “This CMH project has been initiated to further complement Malaysia’s aspiration in becoming an Islamic financial hub. In this respect, KRX is pleased to have the opportunity to contribute to this remarkable project. This arrangement will witness the collaboration of KRX’s technical expertise in developing various trading systems and Bursa Malaysia’s capabilities in offering innovative Islamic capital market products.”

The experience gained by the KRX in tailoring its systems to comply with Bursa Malaysia’s requirements may well have provided a valuable learning experience when the time comes for the exchange to create its own Islamic platforms.