The GCC and Southeast Asian regions have a long history of doing business together. Both regions could capitalize on this by extending their trade ties further and including Islamic financial services in their business relations. The challenge that occurs is related to the differences in opinion on what is permissible within Islam between Southeast Asia and the GCC. The role for the GCC is therefore not so much as an investor in Southeast Asia since the structures offered are potentially not compatible with the requirements of GCC investors. However, with the GCC being a major player when it comes to issuing Sukuk, it is well set to be a provider of liquid instruments for institutions and investors based in Asia.
DR NATALIE SCHOON
Principal consultant, Formabb
There are strong, well established links in Islamic finance between the GCC and Malaysia, and to a much lesser extent Indonesia. The most visible links are through Al Rajhi Bank and Kuwait Finance House. Both have performed well in Malaysia, but it is notable that other Islamic banks from the GCC have not joined them, perhaps because of perceptions that the Islamic finance market is saturated and further new entrants will have difficulty in making profits.
Malaysia and Indonesia want to attract more Shariah compliant investment, but here again the picture is mixed. The Invest Malaysia Forum in Dubai in 2011 was regarded as a great success, yet last year GCC investors pulled out of the Medini development in Iskander. This was largely because the companies involved were short of funds and gave priority to rebuilding their books after the Dubai property crash of 2009. There has been GCC interest in investing in agriculture in Indonesia, but there is local resistance as land ownership is a sensitive matter.
Overall it is important to recognize that Islamic investment flows, like other capital movements, are commercially driven. The positive economic outlook for the GCC should help increase available funding, but whether it flows to Southeast Asia will depend on the expected returns.
RODNEY WILSON
Emeritus Professor, Durham University, UK; Visiting Professor, INCEIF
It is well known that there are currently only two centers of gravity for the Islamic finance industry: the GCC and Southeast Asia. The former is more active in the investment funds market segment while the latter is more active in the Sukuk market segment. As a result of such a differentiation, those two regions boost, generally speaking, each other’s Islamic finance economic sector.
As regards more specifically the contribution of the GCC countries to the growth of the Southeast Asian Islamic finance industry, such a contribution is twofold. Firstly, there is a direct contribution insofar as investors from the GCC countries are used to investing massively in the Sukuk issued by Southeast Asian entities as the latter usually offer more sophisticated Sukuk than in the GCC region. Secondly, GCC financial institutions have also indirectly contributed to the continued growth of the Southeast Asian Islamic finance industry through the establishment of affiliates in that region, such as Gulf Finance House or Al Rajhi Bank.
SUFIAN BATAINEH
Managing director, Dananeer
Given the high level of gas and oil revenues that many GCC countries enjoy, they are likely to continue as major capital exporters for some time. Some of those capital exports find their way to Southeast Asia as equity capital for Islamic banks and Takaful operators where they support the expansion of the Islamic finance industry. Furthermore as capital exporters, the GCC countries can further assist by purchasing international Sukuk issued by Southeast Asian companies.
In my view, GCC capital exports are the primary role, as Southeast Asian countries are relatively self-sufficient when it comes to Islamic finance human capital needs.
MOHAMMED AMIN
Islamic finance consultant and former UK head of Islamic finance at PwC