This has been a quiet year for Islamic finance in the US, but energy is building. Transactions are being done at the larger end of the spectrum as overseas funds still seek solid assets, and more discussions are being carried out about promoting more large Sukuk transactions.
At the retail level, after last year’s shot to the chest from the Assembly of Muslim Jurists of America (AMJA) Fatwa in which a group of scholars declared pretty much every product in the country unacceptable, the retail mortgage providers have all re-grouped, tended their wounds, and begun to move forward again. Commercial SME financing continues plodding along at a liquidity-constrained pace. The few public investment funds continue to grow having reached the coveted ‘crossover’ status of appealing to non-Muslim investors. A proto-Islamic ‘bank’ was launched in September, but likely won’t develop quickly until various issues on securities laws can be clarified. The Malaysia/US Chamber of Commerce even had a conference on the Islamic capital markets in the US, which was a surprisingly decent conference considering the nearly complete lack of an Islamic capital market in the US.
The real estate firm 90 North has made a substantial commitment to developing real estate projects in the US on behalf of its clients and has been repositioning a third of a million square feet of office space in the Chicago suburbs. Other large projects include the financing of Islamic community centers and New York real estate, all using overseas money. These larger financing projects are often occurring in the US, but are not in the spotlight as there is no requirement that they be reported and the participants are often not interested in publicity.
One area where there has been publicity is with the AMJA October 2014 Fatwa that found the retail provision of home financing in the US universally flawed. The industry response was predictably strongly critical of this Fatwa, and much of the year has focused on ‘spin control’ explaining the flaws of this Fatwa, rather than driving product change as perhaps the AMJA may have wished. Production volumes at the major providers were briefly affected, but have returned to normal and appear to be growing across the board. Conditions remain favorable for buying homes in the US, and this is reflected in the Islamic financing volume.
With the improving US economy, small enterprise financing is also increasing; however, such financing is still constrained by the size and number of institutions that provide such financing. Most of the financing is still tied to real estate assets, though there has been more activity in financing heavy equipment as well as companies in the Halal food segment provided both at the bank-level and by private fund capital. This is a trend that will likely continue as the demand for Halal food in more mainstream stores, such as Walmart, is increasing in excess of the ability of Halal food companies to meet the demand. This year has also seen growth in syndicated SME financing, as some of the providers have worked with other institutions to handle larger transactions on a shared basis.
On the investment fund level, there are now more than half a dozen Shariah compliant funds publicly traded in the US. As of the end of 2014, there is now a second attempt (after the failed Javelin JETS Islamic ETF) to launch another Islamic exchange-traded fund. The Falah Capital ETF is the ‘Falah Russel-IdealRatings US Large Cap ETF (NYSE: FIA); however, as of this writing, it has only attracted US$1.3 million in assets. Saturna Capital has a new entrant in the fund universe with the end of September 2015 launch of the Amana Participation Fund, which has attracted just under US$6 million in assets, as of this writing. The Azzad Funds have also gained some good visibility as a result of the completion of an external Shariah audit performed by the Islamic Finance Advisory and Assurance Services auditors in the UK.
On the 15th September 2015, Abraham’s River commenced preliminary operations, structured as a financial institution for non-interest-based finance, modeled after an Islamic bank. Its management is working to clear securities hurdles before investment becomes available to the public, however, and it is currently building its portfolio of assets with a small investor group.
The Malaysia/US Chamber of Commerce held its second Islamic finance conference in Washington, DC in October titled ‘Islamic Capital Market: Inroads into the US’ in the hopes of expanding asset generation and securitization by US issuers. This is in part an outgrowth of Islamic finance and Islamic capital markets seminars being held at Drake University in Iowa thanks to Noripah Kamso acting as a visiting scholar in residence. She has been an advisor for CIMB Islamic and CEO of CIMB Principal Islamic Asset Management in Malaysia. The Principal Financial Group is headquartered near Drake. As much as various Asian and Gulf countries fight with each other to be the hub of Islamic finance, I bet none of them thought of Des Moines as being a threat – until now! Or, maybe not.