Last year has seen consolidation rather than significant expansion in Islamic banking. Although the global financial crisis has ended, the effects of recession in some countries and slow growth in others resulted in less deposit growth and muted demand for financing. Economies such as India and China outperformed, but there is little Islamic finance in these markets. Developments in the GCC as usual reflected oil prices, which remained firm in 2010. Despite worries at the start of the year, there were no failures in Islamic finance in Dubai, and investors in maturing Sukuk had their capital repaid in full. Prospects for the UAE generally look better for 2010. Continuing growth in Islamic finance is also likely in Saudi Arabia, where economic prospects have improved. In Southeast Asia accelerating activity in Indonesia seems likely, but Malaysia will remain the world’s leading Islamic capital market, through most of the issuance and trading will remain domestic currency based.
PROFESSOR RODNEY WILSON
Islamic finance graduated to the mainstream in 2010. The international community came to accept Islamic finance in ways unlikely two years earlier. The global credit crisis had much to do with that credibility, as the asset backed nature of the industry helped it to withstand most of the headwinds. Of course the industry was set back by the sharp decline in global asset values themselves, an indicator of how macro developments can overwhelm even the best of business models. From our corner of the world, interest in using Shariah compliant structures to achieve cross border financing is an indication of broader market acceptance, and is also recognition of the reality of capital surpluses across the Islamic world. One element is ongoing oil price buoyancy; another element is prudent macroeconomic management in Southeast Asia. We are seeing firms in Eastern Europe, the US, and East Asia raise queries anew about Islamic financing mechanisms as a substitute for conventional finance. India meanwhile percolates with enthusiasm for the industry. Certainly there is a need for better and ongoing research in comparing conventional and Islamic mechanisms. Early stage work at the IMF is encouraging. Also on our wish list is a generally accepted Shariah compliant dynamic currency hedging product or overlay, as well as Shariah compliant access to a wider array of asset classes. Through our own work, we aim to encourage diffusion of the industry on the global playing field. DOUGLAS CLARK JOHNSON CEO, Codexa Capital |