Exclusive outtakes from industry leaders
MANAMA, Feb 18 (Reuters) – Dubai’s debt fiasco and real estate bubble bust pushes investors to look out for alternative assets underlying Islamic finance products – could renewable energy provide a way-out?
Predominantly, Islamic finance and investment products have been backed by infrastructure or commodities assets. But executives at the 2010 Reuters Islamic Banking and Finance Summit said product diversification was needed to cut the over-reliance on real estate in the Gulf.
“Sharia scholars are eager to support the renewable energy initiative, but the Islamic banking industry (in the Gulf) does not seem to be overly interested in this area although I am aware of a couple of deals involving acquisitions of clean tech companies in the U.S. and wind farms in the UK,” said Ayman Khaleq, partner at the Vinson & Elkins law firm in Dubai.
“The big banks have teams that focus on renewable energy as an asset class. However, the problem is that Islamic banks are not big enough to be able to cover specific sectors such as alternative energy,” he added.
The limited number of Sharia scholars has meant the same
group of men are on various advisory boards which has led to criticism
that people can go “fatwa shopping” and that scholars are in it for the money.
Not so, says Harris Irfan, head of Islamic products at
“We’re not out fatwa shopping,” he said at the Reuters
Islamic Banking and Finance Summit. “We want to work with the
scholar who’s willing to say ‘no’ (to non-Sharia products)”
Anyone waiting for Gulf banks to consolidate — a long talked about prospect — can forget about it for now.
With debt markets shut, leaving only pricey equity financing, budding suitors are standing frozen, unable to make a commitment.
Manama, Bahrain Feb. 16 - The Islamic finance industry has a problem. Its main selling point is that it is sharia-compliant, meaning it adheres to Islam’s prohibition of interest and avoids dealing with forbidden sectors such as alcohol and gambling.
But in the eyes of many, much of the industry is actually not sharia-compliant at all.
from Global Investing:
The Dubai World crisis has forced sukuk bond investors to wake up to the reality that sukuk isn’t completely straightforward, said Farmida Bi, a partner at Norton Rose, speaking at the Reuters Islamic Banking and Finance Summit in London on Monday.
“There seems to have been a lot of wishful thinking around implied (sovereign) guarantees and enforcement, which isn’t straightforward in this region,” she said.
Islamic banking is one of the world’s fastest growing financial sectors, according to industry estimates. It has attracted more attention in the aftermath of the global financial crisis as investors are increasingly looking for alternative, ethical ways of investing. This has also intensified a debate within the industry on whether it should move further away from conventional banking, designing products based more directly on Islamic principles.
Global issuance of Islamic bonds, or sukuk, is expected to fall this year from 2009 levels, a recent Reuters poll showed, as the Dubai debt crisis and an expected rise in borrowing costs weigh on market sentiment. In the Gulf Arab region, a funding crunch at Bahrain-based Islamic investment house Gulf Finance House shows that the financial crisis is far from over in the region and that the industry urgently needs to develop new products and business lines to generate revenues.
It’s not just traditional western banks that are hurting — the recession is hitting Islamic finance hard, too.
The industry, which operates according to Islamic law and hence has an in-built conservative investment strategy, is seen as relatively insulated from the financial crisis. But some executives at the Reuters Islamic Banking and Finance Summit are not so sure.
Despite the global slowdown Islamic banking will continue to grow as multinational banks trim investments and sovereign wealth funds inject cash.
Professor Mahmoud El-Gamal, Chair of Islamic Economics at Rice University, says that despite the global economic slowdown Islamic banks will likely continue to see good growth because multinational financial institutions have had to cut back on lending in the Middle East and Sovereign Wealth Funds, eager to advocate Islamic financial growth, will likely inject the sector with cash.
This week we had the opportunity to speak with Mohsin Khan, Senior Fellow at the Peterson Institute for International Economics and the former head of the Middle East department at the International Monetary Fund, ahead of the 2009 Reuters Islamic Banking and Finance Summit. I asked him why he thought that the once red-hot market for Islamic bonds had slowed to a trickle. Khan says some of the largest issuers of Islamic bonds, or sukuk, were real estate developers and the reason corporations are reluctant to buy or issue sukuk these days is due in large part to the continuing decline in the value of real estate in Dubai. Click below to listen:
Kahn on sukuk issues from Reuters TV on Vimeo.
Mohsin Khan, former head of the Middle East department at the International Monetary Fund, says the Islamic banking industry could benefit from consolidation by reducing the number of sharia boards, or groups of Islamic scholars, that each bank employs in the Middle East to decide whether or not investments comply with Islamic law. I spoke with Khan earlier this week ahead of the 2009 Reuters Islamic Banking and Finance Summit that kicks-off on April 13th in Dubai, Bahrain, Kuala Lumpur and London. Click here to listen:
Kahn on consolidation from Reuters TV on Vimeo.