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Tuesday, 20 November 2007

Japan Developing Yen For Islamic Finance

HONG KONG - Japan may find Western-style buyouts repellent, but Islamic finance seems to be another story. On Monday, the first real estate transaction compliant with Islamic law was struck in Japan, with the asset manager Atlas Partners Japan partnering with Kuwait’s Boubyan Bank to buy three office buildings in Tokyo for 4.38 billion yen ($40 million).
The transaction follows a decision in September by the country’s central bank, the Bank of Japan, to deepen its knowledge about Islamic finance by joining the Islamic Financial Services Board, an international standard-setting body, as an observer. Another government agency, the Japan Bank for International Cooperation, also sits on the board as an observer.
Japan may not be the most hospitable destination for Islamic products, with its relatively homogeneous society and penchant for such un-Islamic activities as drinking. It could, however, make up aplenty with abundant business opportunities for the vast amounts of petrodollars that Middle Eastern countries are seeking to invest.
An executive with Boubyan Bank, Abdulla Mulaifi, told reporters in Tokyo that the deal commits nearly 5% of its $350 million open-ended global real estate investment fund to Japan, with more investments planned for other Asian countries.
The buildings that Atlas and Boubyan bought on Monday were vetted thoroughly according to the standards of Islamic finance, which bars tenants such as interest-taking financial institutions, restaurants that serve alcohol or pork, hotels, cinemas and record companies, and businesses that deal with arms, animal genetic engineering or pornography.
The deal was designed to avoid loans involving interest payments, which are forbidden under Islamic law, or Sharia.
Japanese financial institutions are making a late entry into the Islamic financial world compared with Western counterparts such as HSBC and Citigroup. Nonetheless, they appear to be warming up rapidly to what is believed to be a $400 billion market.
At the end of last year, Japan’s largest bank, Mitsubishi UFJ, forged an alliance with Malaysia's CIMB Group to provide Islamic financial investment banking services, such as issuing Islamic bonds to Japanese companies operating in Malaysia.
Daiwa, Japan’s second-largest securities broker announced in August that it would list a Sharia-compliant exchange-traded fund in Singapore based on an index benchmarked to the equities of the 100 largest Japanese companies by market capitalization.
Expect more to come. - (Forbes, 20 Nov 07)

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