M alaysia’s commitment to Islamic finance and the interest in neighboring countries has helped to increase links with the Gulf where there is a similar commitment. However, although this was a necessary condition to foster cooperation in Islamic finance, it is not a sufficient condition. Ultimately Islamic financial flows depend not only on Shariah compliance, but on the underlying economic conditions that determine the profitability of investment. In the case of Malaysia the obvious successes have been the arrival of Islamic banks such as Al Rajhi and Kuwait Finance House from the Gulf, both of which have focused on their strengths – retail banking in the case of Al Rajhi and real estate finance in the case of KFH. There were push as well as pull factors for these institutions, not least the saturation of Islamic banking services in their home markets and increasing competition. No doubt their arrival has brought more tourists from the Gulf, including those seeking holiday homes. Wider benefits will be limited. For Singapore the position is more difficult, as it aspires to be an international center for Islamic finance. Given increasing disclosure requirements in Switzerland it can, and does, play a role in Shariah compliant wealth management, and its legal system is well regarded in the Gulf. However, its ability to act as an intermediary between the Gulf and China has yet to be proven, and the domestic Singapore market is of little interest to Gulf institutions, Indonesia has vast potential for Islamic finance, but at present it is on the margins of the banking system. Economic and political risk factors deter Gulf investors, and confidence-building is a lengthy process. In summary, there have been successes from the cooperation in Islamic finance, but it is also important to be realistic about what can be achieved in the short and medium term.
PROFESSOR RODNEY WILSON
To speed up transactions we believe that we need to bridge the two cultures together more through mainly: (i) more reciprocated investments to get business people to know the issues and thinking philosophies; and (ii) more collaboration and participation of scholars in the same events to exchange thoughts and help in bringing the two environments closer. I am sure there are more details and examples one could go into, but to be short and precise I stop here. JAMIL AK JAROUDI PHD: Chief Executive Officer, Sokouk Exchange Centre Bank-TADAWUL
In my view, it is not the funding which is the issue, but more the level of IRR which Malaysian projects can deliver to the Middle Eastern investors. Middle Eastern investors require an IRR of at least 18% before they will invest outside their shores. MOHAMED RIDZA Managing Partner, Ridza Law (Mohamed Ridza & Co)
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