Finding trust in Islamic finance

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Islamic financeMuslim-majority Malaysia is home to some of the most ornate mosques in Asia, sacred temples that breath an air of the country’s Moorish roots, still well pronounced even between the glimmering skyscrapers of Kuala Lumpur. Yet Malaysia’s emergence as the undisputed Islamic finance hub of the world is much more about developing a syncretic system based on social justice than observing all the rigours of the Quran.

by Justin Calderon

Lead by Kuala Lumpur, today the Islamic finance market carries as estimated worth of $1 trillion, with global issuances of sukuk – or Shariah-compliant bonds – ballooning from $20 billion in 2008 to $130 billion in 2012. The secret to this growth pattern, CEOs of Islamic finance institutions across the GCC and ASEAN will chime, is the inherent appeal of a new model in banking that is devoid of immoral speculation, overly complex derivatives and interest-bearing loans.

In the wake of the implosion of liquidity witnessed during the global financial crisis of 2008/09, this more morally intact counterpart to conventional banking has become attractive for banking retail customers curious to seek out alternatives.

Badlisyah Abdul Ghani, CEO of Malaysia’s CIMB Islamic, has stated that 40 per cent of the bank’s customers are now non-Muslim. To the north in neighbouring Thailand, the non-Muslim customer base of the Islamic Bank of Thailand is now 40 per cent as well, marking a substantial shift that has allowed the company to burgeon from 26 to 101 branches throughout the country in a matter of a few years.

Senior Executive Vice president Dr Rak Vorrakitpokatorn of the Islamic Bank of Thailand believes this spike in customers is to do the open-minded nature of Thais. “Regardless of their origin, the joint venture concept of Islamic finance is already familiar to many Buddhists who find mutual funds quite appealing,” Dr Rak says.

Yet while this growth can be hard to measure in global volumes, when the origin of money is hard to quantify, a greater appeal in sukuk is clearly evident today. Mr Steve Troop, CEO of Barwa Bank in Doha, Qatar has noticed “an increased interest from ‘non-Muslim’ money for sukuk as this asset class has become more liquid on secondary markets, and, in addition, because of the perception that traditional sukuk investors have been relatively sheltered from the global crisis, which has provided comfort to conventional investors.”

Today, while Malaysia boasts the world’s largest Islamic private-debts securities market registered at $35 billion, the Middle East still represents 79 per cent of the global Islamic finance market (with Saudi Arabia serving as the core market), while Malaysia represents just 11 per cent.

In the lead up to major infrastructure spending in Qatar for the FIFA World Cup 2022, sukuk issuances are set to expand, already accredited with successfully attracting major purchasers from the Far East, namely China and Malaysia.

The world of Islamic finance is full of growing pains that come natural to an industry at such an incipient stage, and thus rightly replete with debate over how to govern the rules of regulations across borders. It is not , however, how scholars in Ivory Towers push forward the agenda that will determine the ultimate success of Islamic finance, but the broader level of communication and purchases between the two frontrunner regions: ASEAN and the GCC.

Look for Inside Investor’s upcoming special report on Islamic finance, titled “A Matter of Trust: Establishing trust in Islamic finance between ASEAN and the GCC.”

 

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Reading Time: 3 minutes

Muslim-majority Malaysia is home to some of the most ornate mosques in Asia, sacred temples that breath an air of the country’s Moorish roots, still well pronounced even between the glimmering skyscrapers of Kuala Lumpur. Yet Malaysia’s emergence as the undisputed Islamic finance hub of the world is much more about developing a syncretic system based on social justice than observing all the rigours of the Quran.

Reading Time: 3 minutes

Islamic financeMuslim-majority Malaysia is home to some of the most ornate mosques in Asia, sacred temples that breath an air of the country’s Moorish roots, still well pronounced even between the glimmering skyscrapers of Kuala Lumpur. Yet Malaysia’s emergence as the undisputed Islamic finance hub of the world is much more about developing a syncretic system based on social justice than observing all the rigours of the Quran.

by Justin Calderon

Lead by Kuala Lumpur, today the Islamic finance market carries as estimated worth of $1 trillion, with global issuances of sukuk – or Shariah-compliant bonds – ballooning from $20 billion in 2008 to $130 billion in 2012. The secret to this growth pattern, CEOs of Islamic finance institutions across the GCC and ASEAN will chime, is the inherent appeal of a new model in banking that is devoid of immoral speculation, overly complex derivatives and interest-bearing loans.

In the wake of the implosion of liquidity witnessed during the global financial crisis of 2008/09, this more morally intact counterpart to conventional banking has become attractive for banking retail customers curious to seek out alternatives.

Badlisyah Abdul Ghani, CEO of Malaysia’s CIMB Islamic, has stated that 40 per cent of the bank’s customers are now non-Muslim. To the north in neighbouring Thailand, the non-Muslim customer base of the Islamic Bank of Thailand is now 40 per cent as well, marking a substantial shift that has allowed the company to burgeon from 26 to 101 branches throughout the country in a matter of a few years.

Senior Executive Vice president Dr Rak Vorrakitpokatorn of the Islamic Bank of Thailand believes this spike in customers is to do the open-minded nature of Thais. “Regardless of their origin, the joint venture concept of Islamic finance is already familiar to many Buddhists who find mutual funds quite appealing,” Dr Rak says.

Yet while this growth can be hard to measure in global volumes, when the origin of money is hard to quantify, a greater appeal in sukuk is clearly evident today. Mr Steve Troop, CEO of Barwa Bank in Doha, Qatar has noticed “an increased interest from ‘non-Muslim’ money for sukuk as this asset class has become more liquid on secondary markets, and, in addition, because of the perception that traditional sukuk investors have been relatively sheltered from the global crisis, which has provided comfort to conventional investors.”

Today, while Malaysia boasts the world’s largest Islamic private-debts securities market registered at $35 billion, the Middle East still represents 79 per cent of the global Islamic finance market (with Saudi Arabia serving as the core market), while Malaysia represents just 11 per cent.

In the lead up to major infrastructure spending in Qatar for the FIFA World Cup 2022, sukuk issuances are set to expand, already accredited with successfully attracting major purchasers from the Far East, namely China and Malaysia.

The world of Islamic finance is full of growing pains that come natural to an industry at such an incipient stage, and thus rightly replete with debate over how to govern the rules of regulations across borders. It is not , however, how scholars in Ivory Towers push forward the agenda that will determine the ultimate success of Islamic finance, but the broader level of communication and purchases between the two frontrunner regions: ASEAN and the GCC.

Look for Inside Investor’s upcoming special report on Islamic finance, titled “A Matter of Trust: Establishing trust in Islamic finance between ASEAN and the GCC.”

 

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