I slamic finance is actually much better known in the world`s major financial centers than one might think – but quietly so. Much of the innovation and impetus for growth is coming from major conventional institutions in these countries, particularly in relation to the structuring, underwriting and financing of large commercial deals involving project finance – a natural fit for Shariah compliant structures. However, at the retail level, Islamic finance has yet to make a material impact, not least due to reservations on the part of regulators and the heavy capital requirement that is incurred in setting up `de novo` operations. Given the relative scarcity of assets physically located in the Islamic world suitable for structuring within Shariah compliant corporate offerings, a key milestone will be the Islamic structuring of assets located in countries such as Japan, USA and in Europe. Another key milestone will be acquaintance with and acceptance of Sukuk and other Islamic financings by conventional market makers as mainstream products rather than curious hybrids – rated by the leading western rating agencies on a strictly comparative basis. When these conditions are in place, product volumes will increase to levels that alert the major players to the potential financing and trading opportunities, a liquid secondary market will develop and tenors will become longer. These markets are absolutely essential to the growth and maturity of Islamic finance. Without the participation of the world`s major financial centers, Islamic finance will remain in the financial backwaters, a bit player with little influence on the global economy – and that will be sad.
JAMES HUME
C learly Islamic finance has evolved during the past few years and significant transactions have been originated, structured, transacted or listed in the major international financial centers. In particular London and New York have a growing attraction for Islamic banking and finance due to the presence there of the Middle East Financial Institutions, increasing product innovation and investor comfort with the business and regulatory environment. The establishment of the Islamic Bank of Britain in 2004 in the UK represents a significant milestone and is the first dedicated Islamic Bank in Europe. Plans are underway to establish an Islamic Investment Bank and the first Takaful Company in the UK. Major Islamic real estate, leasing and asset backed securities transactions have emanated from New York. The World Bank and other leading international agencies based in the US are increasingly becoming involved in the world of Islamic Banking and Finance. International Financial Institutions like HSBC, Citigroup, ABN AMRO, Deutsche Bank and others have established centers of product excellence dedicated to Islamic banking and finance. New investment structures include Shariah compliant Hedge Funds, Private Equity and Sukuk (asset backed securities). The financial technology has been deployed effectively and centers like London, New York and Singapore have facilitated the migration of product innovation and crafting of creative wealth management solutions. The listing benefits, registration and the domiciliation of Islamic investment and finance products and tapping into the pools of creativity and quality financial engineering skills available in these prominent financial centers are key. Strategic cross border alliances and joint ventures are being formed. Manufacturers are looking to expand their reach to new asset classes and distribution channels. This trend is gaining momentum and will expand the penetration into these hubs. SOHAIL JAFFER Partner FWU Group
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