Thai Islamic finance market bid faces hurdles

By Orathai Sriring

BANGKOK, June 26 (Reuters) - Thailand faces many obstacles to developing an Islamic finance market to compete for Middle East funds seeking to invest in Southeast Asian economies, officials said on Thursday.

The predominately Buddhist country, home to 6 million Muslims, still lacks a legal and regulatory framework to comply with Islamic law, Finance Ministry deputy permanent secretary Sathit Limpongpan told an Islamic finance conference in Bangkok.

"Thailand has every intention to develop an Islamic banking system, but there is a long way to go," he said.

Thailand lags far behind its Muslim majority neighbour, Malaysia, which accounts for about two-thirds of global issues of Islamic bonds, called sukuk.

Islamic bonds do not pay interest, which is banned as usury under Islamic law, and are structured as profit-sharing or rental agreements underpinned by physical assets.

Sathit said a working group was studying ways to adapt Thailand's financial reporting, accounting and tax systems. Another goal was to develop a secondary market.

"We are still at an early stage, but we can benefit from the experience of those who have travelled the path ahead of us," Sathit said, noting Malaysia's expertise in Islamic fund management and insurance.

The value of assets currently under Islamic finance is estimated at $1 trillion and growing at an estimated rate of 10-15 percent a year, according to the Asian Development Bank.