I am not convinced that practitioners and government bodies will need to do very much at all. Nature abhors a vacuum and markets have a way of finding where the money is. The issue will be more of Islamic finance grasping the opportunity in a balanced way and ensuring that we use it skillfully to promote what we have to offer.
DAUD VICARY ABDULLAH
There already is a strong interest in attracting Shariah compliant capital, especially by the private equity industry, which has been adversely affected by the credit crunch. Financing difficulties are also apparent in conventional bond markets, although the costs of raising funding through Sukuk have also risen, deterring most issuers, especially those seeking US dollar-denominated funding.
Although the credit crunch provides opportunities for Islamic financial institutions and Shariah compliant investors with liquid funds, caution is needed in the current very uncertain conditions. Islamic banks cannot, and should not, act as lenders of the last resort, and regulators need to satisfy themselves that Islamic bank assets are not being expanded too rapidly, which could increase operating and credit risk. The best Islamic finance deals have a positive rationale that often involves establishing long-term relationships. When corporates in Europe and the US raise Islamic finance, part of the payoff may be that they establish subsidiaries in Muslim countries, helping technology transfers and employment creation. The credit crunch is a short-term difficulty, and temporary substitution of Islamic for conventional finance may not bring much in long-term benefits.
PROFESSOR RODNEY WILSON
Director of postgraduate studies, Durham University, UK
In the market, we see more and more non-Muslims inquiring about Islamic finance mainly because they appreciate the underlying principles of justice in exchange, lack of speculation and transparency in the components of the transactions. The main drawback for investors is often twofold: (i) Lack of standardization of contracts. This results in a situation where transactions cannot be executed uniformly. This in turn leads to increased involvement of legal departments with the associated costs as well as an increased operational cost involved in the administration of the different contracts and ensuring individual contracts are executed as per the correct contract. (ii) Lack of familiarity. Islamic finance is still a new field and although a substantial number of training courses is becoming available, it is still not a well-known phenomenon.
Enhanced standardization and increased familiarity with the underlying principles as well as the different products will result in wider acceptance of Islamic finance, which will in turn lead to capital flows from Islamic financial institutions to western-based banks and corporates. Although this can partly be achieved by government-led initiatives, the main responsibility will be with practitioners in the industry.
DR NATALIE SCHOON
It would be extremely helpful if the governments that are providing funds for stricken banks could also publicly allocate additional resources to the Islamic banking industry, to show support for an alternative business model. Such additional funds would then help drive a further round of product supply and innovation and an increase in the issuance of Shariah compliant financing instruments to utilize these new funds. In the longer run, it would also be helpful if some of the SWFs (sovereign wealth funds) started to look at investing more consistently in the sector rather than further increasing exposure to the international banks.
The Islamic Bank of Asia, Singapore