After the unprecedented local social unrest in the second half of 2019, Hong Kong was further adversely impacted by the global COVID-19 pandemic, such that micro and macroeconomic performances of the world’s second-freest economy reached a historical low. In such extraordinary circumstances, Islamic finance development has been impeded to a slower pace amid this critical moment when compared with previous years. Fortunately, the ‘Pearl of the Orient’ has gradually resumed its economy after the enforcement of the National Security Law (NSL) and adopted effective public health measures to keep the pandemic at a controlled level, which collectively benefit the daily lives of the 300,000-strong local Muslim community in terms of safety, employment and business, which in turn will provide some further momentum for the development of the Islamic finance and Halal industry in Hong Kong.
Review of 2020
Despite the social and public health downsides, the existing sovereign Sukuk have been performing well so far and the Hang Seng Islamic China Index Fund has also been playing a persistent role and achieved an annualized return of 24.89% in 2020 — both of these indicating the healthy status of Islamic finance development in Hong Kong’s financial market amid the crises.
The Halal industry, the highly correlated sector with Islamic finance, also showed the good work of The Incorporated Trustees of the Islamic Community Fund of Hong Kong (BOT) in terms of 122 Halal certificates issued to food factories, restaurants and catering kitchens in China, Hong Kong and Macau.
Allalah Consulting has been working closely together with local and overseas regulators, financial institutions, religious bodies, academics and other stakeholders, particularly in Sukuk, Islamic fintech and Islamic finance education, with a view of boosting awareness, innovations, inclusion and applications for the well-being of Muslim and non-Muslim audiences eager to embrace Islamic finance in Hong Kong.
Preview of 2021
Sukuk are always regarded as the most rapidly growing sector of Islamic finance and Hong Kong has fertile soil to make it flourish. As the economy gradually recovers and the pandemic is getting more controlled or going away, and from the tremendous performance of the previous three successfully launched sovereign Sukuk totaling US$3 billion in recent years, the fourth sovereign Sukuk issuance by the Hong Kong government as well as the inaugural corporate Sukuk issuance are very looking very likely to happen in 2021. The sovereign issuance is expected to be at least US$1 billion whereas the corporate issuance is anticipated to come from either Hong Kong blue-chip real estate property and telecommunication entities or overseas oil and pharmaceutical giants and with a value of not less than US$500 million.
With the successful operation of FWD Takaful — backed by Hong Kong business magnate Li Ka Shing — in Malaysia, the long wait by Hong Kong insurance market players for a Takaful product that can be launched and offered to the Muslim population as well as non-Muslims who are interested in such Shariah compliant insurance products seems to be coming to an end. Unlike Sukuk, however, Hong Kong needs to expedite the enactment of Takaful legislation to make this promising business happen for the insured.
Halal certification coverage will be extended in the coming years as local Muslim consumers are more eager than ever to look for a bigger variety of locally made and imported food products and cosmetics while non-Muslim consumers now have a higher awareness of the merits of Halal product consumption in their daily lives. When the pandemic goes away and travel restrictions are relaxed, Halal tourism will be a catalyst to the economic recovery of Hong Kong, where more Halal-certified hotel and restaurant services will be in demand from both local and foreign customers. BOT is endeavoring to keep up its good work in this regard.
The Hong Kong Centre for Islamic Finance (HKCIF), under the management of Allalah Consulting, is continuing with its efforts to promote and offer Islamic finance education with strategic partnerships with worldwide renowned academic institutions. Being AAOIFI’s educational partner, the HKCIF endeavors to make the relevant professional exams available in Hong Kong in 2021.
Hong Kong is a unique super-connector between China and the Islamic world under the Belt and Road Initiative, equipped with one of the world’s most advanced financial systems as well as a solid legal system, professional talent pool, proven track record of successful Sukuk issuance, government’s full support in fintech development and a significant Muslim population, among others, and as such, Hong Kong has a sound foundation and potential, especially in the new era of NSL enforcement and economic recovery post-COVID-19, to be able to accomplish some remarkable milestones in Islamic finance development in the next few years in various areas including Islamic banking, Sukuk, Takaful, Islamic fintech as well as Halal finance.