In the enlightening book titled ‘Shariah Minds in Islamic Finance’ written by a prominent Shariah scholar, Chapter 1 starts with his experience in Tokyo, where he talked about Islamic finance with Japanese bankers. As seen in this article, it is no longer relevant to regard Japan as a barren land of Islamic finance. All major banks have already had track records, the government has appropriately prepared a regulatory system, including banking regulations and a J-Sukuk legal framework, and more corporates have used Islamic financial products for their fundraising.
When oil prices continued to surge in the mid-2000s, many newspaper articles picked up introductory Islamic finance, although it is not the case in recent years. Still, more practical developments are seen in the islands of the Muslim-minority market, as well as the fact that the Japanese book titled ‘The very first step to Islamic Finance’, authored by myself with many examples of Japanese financial institutions and corporates, was published this year and has been selling very well.
Review of 2016
A prominent transaction occurred in November this year. An internet-based financial business group named SBI Holdings established an Islamic private equity fund, together with the Ministry of Finance of Brunei Darussalam and including the IDB. The fund is expected to amount to US$100 million. This is not the very first deal for SBI, as they already have an Islamic private equity fund with the Bruneian finance ministry, which did quite well, including the exits of investment from an Indonesia-based distribution company and another IT company.
ORIX, a Japan-based leasing and finance company, has acquired a Pakistani subsidiary of Standard Chartered called Standard Chartered Services of Pakistan which holds a 10% stake in Standard Chartered Modaraba. This will allow ORIX to get more involved in the Islamic financial business in the second-largest Muslim populated country.
It is also reported that Bank of Tokyo-Mitsubishi UFJ (Malaysia) has started to offer Islamic securitized products.
Not just limited to major deals in the private sector, various types of developments were seen in the Islamic finance industry in Japan in 2016. Firstly, the law of a government-owned Japan Bank for International Cooperation was amended and Islamic finance was included in its financial activities. Technically, the wordings followed the example of the regulations for banks, which had been amended in 2015.
Thirdly, in the academic field, the Japan Society of Monetary Economics established a session for Islamic finance in its annual conference, composed of three presentations. It was the first in its history since the 1940s.
To wrap up, we have witnessed developments of Islamic finance of Japan-related entities in various fields.
Preview of 2017
It is expected that major financial institutions will continue their efforts to include Islamic finance in their product suites. On top of that, a Japanese technology firm, Softbank, has recently established an investment fund with the Public Investment Fund of the Kingdom of Saudi Arabia, and this has a potential to create another stage of Islamic finance in the country. Softbank has bought companies of various sectors in many countries, and their investment skills are expected to contribute to Saudi Arabia’s shift from being an oil-dependent nation to a more well-balanced market with more manufacturers and various services providers, in its pursuit of a more diversified economy.
Another trend is inbound Halal business in Japan. More Muslim tourists come to Japan in recent years, and more Halal-based services are coming up. Not just Halal food and establishing prayer rooms in hotels and airports, but there are already a Halal hair salon and even a Halal karaoke place. This trend of Halal business will lead to a high demand of Shariah compliant financial services.
Another big move in the Japanese financial industry is fintech. Fintech, or financial services largely supported by internet technology, is not limited to Islamic finance and is a global and very recent trend. The emergence of Islamic fintech services is not expected to target the Japanese market due to its scarce Muslim population, but Japanese firms in overseas markets are expected to offer them. As an example, the aforementioned Softbank and SBI Holdings have contacts with Muslim markets, and this will enhance their incentives to offer Islamic fintech services.
As discussed previously, Japan is not a barren land of Islamic finance. It is expected to contribute significantly to the development of Islamic finance in the coming years, considering its unique nature in a global context of international finance. Although the volume of deals is not large and its presence in the market is not big, Japan will well to utilize the ‘little head, great wit’ strategy in Islamic financial markets.
Etsuaki Yoshida is the project associate professor at Kyoto University. He can be contacted at [email protected].