Sep 4th 2008 | MANAMA
From The Economist print edition
Muslims have a lot of money to invest. But it is a constant struggle to reconcile faith and finance
TO SEE Islamic finance in action, visit the mutating coastline of the Gulf. Diggers claw sand out of the sea off Manama, Bahrain’s capital, for a series of waterfront developments that are part-funded by Islamic instruments. To the east, Nakheel, a developer that issued the world’s largest Islamic bond (or sukuk) in 2006, is using the money to reorganise the shoreline of Dubai into a mosaic of man-made islands.
Finance is undertaking some Islamic construction of its own. Islamic banks are opening their doors across the Gulf and a new platform for sharia-compliant hedge funds has attracted names such as BlackRock. Western law firms and banks, always quick to sniff out new business, are beefing up their Islamic-finance teams.
Governments are taking notice too. In July Indonesia, the most populous Muslim country, said it would issue the nation’s first sukuk. The British government, which covets a position as the West’s leading centre for Islamic finance, is also edging towards issuing a short-term sovereign sukuk. France has begun its own charm offensive aimed at Islamic investors.
Set against ailing Western markets such vigour looks impressive. The oil-fuelled liquidity that has pumped up Middle Eastern sovereign-wealth funds is also buoying demand for Islamic finance. Compared with the ethics of some American subprime lending, Islamic finance seems virtuous as well as vigorous. It frowns on speculation and applauds risk-sharing, even if some wonder whether the industry is really doing anything more than mimicking conventional finance and, more profoundly, if it is strictly necessary under Islam (see article).