Being caught off guard is not anyone’s cup of tea. Despite much contingency planning, nothing could prepare Japan for the devastation that wreaked the island nation last week. Hence, while paying much attention to detail should cover most ground in any crisis management plan, one can never be too sure.
In the same vein, the reports we bring you this week show that proponents in the Islamic finance industry, while enthusiastic about industry growth and expansion prospects, remain cautious in their approach.
Luxembourg is now recognized as one of the leading European centers for Islamic finance, a European leader in Sukuk listings and ranks first as a domicile for Shariah compliant investment funds. Accolades which were not incidental, but the result of meticulous planning by Luxembourg’s task force set up in 2008, to identify obstacles to the development of Islamic finance and suggest ways to promote its growth.
A report by the Association of the Luxembourg Fund Industry gives a comprehensive rundown of the numerous factors already laid out to facilitate Islamic financial products. The Luxembourg perspective on bancatakaful and its benefits, brought to us in a report by FWU Group, outlines not only the prospects but also various reasons why a certain overriding hesitancy towards the adoption of Takaful exists.
This guarded disposition is in fact evident throughout Europe, though most notably in France. A report by two doctoral candidates from Ecole Nationale Supérieure conclude that Islamic finance is welcome in Europe in so far as it is contained in the financial market in order to reap petrodollars and remains discreet in doing so. Any trace of religiosity is quite abhorred and needs to be dealt with delicately. In the final analysis, the private sector is not against the idea of Islamic finance as long as ‘image risk’ remains at a minimum.
Indonesia too comes under scrutiny. The good news is that industry players are well aware of the current inhibitions, listing unwelcoming laws and regulations by the government, a lack of clear industry standards, no proper guidelines on Islamic securities, the disappointing performance of Sukuk, unresolved tax issues and low public awareness. In fact, in the recent US$824 million government of Indonesia / Perusahaan Penerbit SBSN Indonesia Sukuk, featured in our Termsheet, saw selling agents personally carrying out marketing activities to garner investors in almost all major cities in the country.
The central bank, Bank Indonesia deserves a special mention – its efforts are outlined in a report by BNI Syariah – and its director of Islamic banking Mulya Siregar takes the spotlight in our Meet the Head.
Law firm Azmi & Associates’ report gives the view on Islamic private equity and venture capital as having more basis on risk and profit and loss sharing than typical Islamic financial transactions. University of Reading’s Professor Dr Volker Nienhaus infers in his report that in replicating conventional products, the underlying contracts of Islamic finance adds to individual and systemic risk, on top of commercial risks already present in conventional finance. Our IFN reports this week cover the US’ and Turkey’s love-hate relationship with Islamic finance, and updates on Dubai World, Ithmaar Bank and RAM Rating Services.