Moderator:
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Abdulkader ThomasPresident and CEO, SHAPE Financial Corporation
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Panelist:
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Nik Norishky ThaniExecutive director Islamic Finance, Dubai International Finance Centre
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Mohd Effendi AbdullahDirector/head Islamic Markets, AmInvestment Bank Group
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Prof Mohd Azmi OmarShariah advisor, Bank Rakyat Malaysia and International Islamic University Malaysia
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Etsuaki YoshidaDeputy head Africa and the Middle East, Japan Bank for International Cooperation
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Hooman Sabeti-RahmatiCounsel, Allen & Overy
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Where is the money? “The source of capital is still very much there,” insisted Norishky of Dubai International Finance Centre. To back his contention, he said the two licenses offered by Malaysia to set up mega international Islamic banks capitalized at US$1 billion each are being very keenly pursued by Gulf sovereign wealth funds and banks. Having looked at the proposals, Norishky reported that the numbers and criteria exceed expectations.
However, to ensure continuous confidence in Islamic banking and finance, more must be done in terms of marketing.
Urging the Islamic financial institutions to come up with their risk profiles and aim at giving their products optimum visibility, Norishky felt that Islamic banks are still lacking in fervor when it comes to pursuing deals in the Gulf.
On the quality of the capital market, Azmi of
Bank Rakyat Malaysia pointed out that RM16 billion (US$4.56 billion) of
Sukuk was issued in the year since June 2008.
The fact that Islamic finance is seen as presenting potential for debt securities investment and as a feature to enhance the investors’ portfolio diversity is something for the emerging Islamic issuers to take note of, he added.
Sabeti-Rahmati of
Allen & Overy spoke of enquiries in Singapore on how Islamic transactions can be on a level footing with conventional ones.
He felt that it was not the lack of capital that would be the overriding issue in determining the industry’s advancement but the logistics concerning structure, credit, pricing and legislation.
On pricing, he noted that while transaction costs for Islamic structures which are well worn and established are not much different from the conventionals, it is a different matter with novel or inaugural issues.
Factors like time, legislative work and structuring plans are issues which have to be considered. Effendi of
AmInvestment Bank pointed out that dealing in countries which do not have well-placed legislative measures and secondary markets also contributed to the stiff price tags.
Norishky commented that the habit of making comparisons between Islamic finance methods the conventionals may not be the answer.
Reasoning that there is no such situation where one will always be cheaper than the other, he urged that the onus be placed on giving a deal a better competitive edge and on sharpening the skills of the Islamic bankers involved.
Norishky also emphasized the need for innovation, creativity and adaptability as not all
Sukuk can be ‘straightforward’.
Echoing this sentiment was Effendi who gave examples of fresh business ventures with zero assets but high potential in future cash flows.
“If a company does not have strength in collateral then it must get a different kind of investor base.
This is where you have to look at something else rather than the
Ijarah, which requires assets, and go into
Musharakah, which presents less risk to the investors, or
Mudarabah, where there is a higher element of risk,” he said.
Back to the money however; there is still the crucial question of when liquidity will be returning to the Gulf. Norishky insisted that this will depend on how well the standard setting bodies work with each other.
“Currently, there is a lack of infrastructure and currency exchange mechanisms. If the regulators can focus on building a platform to work on, then there will be a market that will be richer in trading,” he said.