Published: January 31, 2008

Islamic finance nearing ‘critical mass’

By Faisal Masudi, Staff Writer

Islamic finance is approaching “critical mass” in Dubai, the birthplace of banking with a Muslim twist, an international seminar here forecasting the industry for this year heard Wednesday.

Addressing a business delegation that included FTSE Group, the yardstick for British stock markets – the Group was here to announce its launch of an Islamic index – Dubai International Financial Authority’s CEO, Nasser Al Shaali, said it took the emirate only three years to become the world’s “only exportable model for regulating Islamic Finance”.

“It started right here with Dubai Islamic Bank. Today, we have an advisory council, international rating agency, the Cass Business School – the only executive MBA program for Islamic Finance – and an Islamic Waqf (endowment trust)”, said Al Shaali.

Islamic Finance is a Dh3-trillion global industry that grows about 20 per cent yearly, according to various estimates cited by Majid Dawood, CEO of Yasaar Research Inc., the company co-launching FTSE’s Islamic index.

“It is the fastest growing sector in banking, expanding into non-Muslim regions like Europe and South Africa. By 2025, it will make up an estimated 12 per cent of all equity versus debt-based products and transactions”, said Dawood.

The boom is tempting Asian economic powerhouses like Japan and Hong Kong – the gateway to China – who have started tweaking commercial norms there to win Muslim favor and money, said Dawood.

“That’s a good sign. Islamic investments are moving beyond Malaysia and the GCC which have traditionally been driving demand”, Dawood added.

Even the Reserve Bank of India is eyeing investments in line with Shariah, or Islamic law, Dawood told the audience at The Gate, Dubai’s iconic landmark for all things financial.

He also expects London to extend its longtime role as a nerve center for ‘conventional’ business to Islamic finance as well.

“That city has beaten Pakistan, an Islamic republic, as an active role player. We (Muslims) ought to contribute too”, Dawood said.

Although Dubai received a better report – “it’s got a great track record and infrastructure and the government is supportive”, according to Dawood – there is always room for improvement.

Imogen Hatcher, managing director for FTSE Europe Middle East and Africa, who is poised to “take on this part of the world”, wants more “credibility and legitimacy.”

“The ‘feverish innovation’ (in Islamic financial products) has led to very ‘clever’ stuff, if you like”, she said. The cautious sentiment was echoed by Al Shaali who also admitted the “need to be lawful and transparent.”

“There can be no black-boxes, no surprises in this story”, Hatcher said.
Another sticky point in the path of Islamic finance – it forbids investing in businesses dealing in pork, alcohol, cigarettes, and usury, among other taboos in the Muslim faith – is the lack of a united front that determines what is acceptable to trade, the speakers stressed.

While Dawood suggested having on corporate board at least three Muslim scholars – “we all make mistakes” – for a balanced view, Dr. Mohamed Laldin, a religious advisor, said the problem was rooted in the way the industry was evolving.

“The focus seems to be on imitation rather than innovation, where existing conventional products are simply ‘Islamisized’. It is true that we (scholars) sometimes have our own understanding, and practitioners have their own understanding. I think we can all move forward if we work together”, said Dr. Laldin, who was also there for a “blessing ceremony” for FTSE Shariah Global Equity Index Series.

The Series is made up of 96 indices, 12 of which are calculated in real-time.
In 1995, FTSE Group gained independence from its creators, the Financial Times and London Stock Exchange.



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