Most of the Islamic finance activity in the US and Canada is locally based retail funding, mainly home and auto finance. LARIBA American Finance House, the market leader in the US, has been offering services since 1987, but its business was adversely affected by the collapse of the real estate market, especially in California where it is based.
Elsewhere in the Americas there are few Muslims. Although there has been some interest expressed in Islamic finance in Brazil, there have been no concrete developments. Most people of Arab ethnic origin in South America are Christians, mainly from Lebanon, Syria, Egypt and Iraq, rather than Muslims. The Cayman Islands hosts some Islamic funds, but Islamic finance activity there is solely driven by the concern of those involved to avoid tax.
In summary the record shows that the Americas are the least promising region for Islamic finance, and far behind Asia, Europe and Africa.
With an affluent population of more than 10 million, the outlook for Islamic finance should be quite good. Murabahah, Ijarah Muntahia bi Tamlik and Mudarabah deposits have been approved by the federal banking regulators. The recession and restrictive bank lending should also create good opportunities. But, the negative socio-political atmosphere has kept new entrants from joining the first movers in the domestic market.
From the perspective of the existing players, the recent changes in Freddie Mac and Fannie Mae authorizations are also expected to affect the Islamic home finance business as all of the domestic players have enjoyed a robust business delivering agency transactions or selling Musharakah units.
As a result, the outlook for the domestic Islamic finance scene is likely to contract through the election cycle.
International Islamic investment, however, seems to be steady, and may even be increasing as institutional investors take advantage of the weak US dollar, lower asset prices in almost all business sectors, and weak domestic credit and investment funding.
As a result, the foreign direct investment flows that comply with Shariah are expected to increase despite contraction in the domestic Islamic finance market.
The net effect is that the proven tools available to Islamic investors and domestic Islamic consumers continue to be applied. But, the scope for market expansion is limited until after the 2012 presidential election.
The other North American markets, Canada and Mexico lag in development. Three de novo Islamic bank applications in Canada have failed to proceed to the operational stage, leaving the country with its Islamic investment cooperatives and limited capacity.
Mexico’s Muslim population is not yet the object of any study, and domestic troubles surrounding the powerful drug cartels have become a deterrent to foreign investment.
ABDULKADER THOMAS
CEO and President, SHAPE™ — Financial Corp
The weak state of the US economy suggests that the domestic financial services industry will continue to contract and restructure. The best opportunities are likely to be niche ideas addressing targeted audiences. The Islamic finance industry may find reasonable footing in this environment, although it is unrealistic to expect a strong growth trajectory.
One common misperception in the Shariah compliant business is that the US is hostile toward Islamic finance. We disagree. Ignorance about Islam should not be mistaken for hostility towards Islam.
Our own experience indicates that there may be a meaningful voice for the industry in America. The hard-won lessons of the credit-crisis will lead to a greater focus on the tenets framing Islamic banking, such as risk sharing.
To the extent that firms emphasize a selective-and-profitable stance when pursuing the US market, they will likely uncover important business opportunities, given the size and depth of the regional economy.
Success in America, however, will very much depend on the Shariah compliant sector’s ability to compare itself favorably with conventional players, through competitive terms backed by quality of research and marketing.
Few international firms seem prepared for such a journey, especially when momentum in the emerging markets is comparatively robust.
DOUGLAS CLARK JOHNSON
CEO, Codexa Capital
Although Islamic finance finds its origin in the teachings of Shariah, this does not mean that it is restricted to traditionally Muslim countries or, indeed, only available to Muslims. Like anywhere else in the world, Shariah compliant finance may provide an alternative to mainstream financial offerings which may be attractive to both Muslims and non-Muslims.
In order to expand the currently limited offering, there are a number of things that need to be addressed including educating the people about the underlying principles and addressing any potential tax and regulatory issues that may currently hinder the establishment of a level playing field.
DR NATALIE SCHOON
Principal consultant, Formabb