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Saturday, 16 August 2008

Global Islamic finance industry is now a business driven industry for all

Islamic finance has become the buzzword in the financial sector pretty much as e-commerce is for in the Internet, creating a similar impact in the world. Analysts estimate that Islamic assets are set for 25% growth by 2010 to hit USD 1.4 trillion. However are these like bubbles of the 1990s? Saudi Arabia, Malaysia and UAE are leading in terms of assets by 20%, 19%, and 18% market growth respectively. Countries like Bahrain, Qatar and Turkey are well positioned with 9%, 4% and 3% respectively.

For sure, the race is all about capturing the fast growing Sukuk Market (Islamic Bonds). The exponential growth of sukuk issuances, from just US$0.3 billion (2000) to US$47 billion (2007) is forecasted to be USD 100 billion by the end of 2008. With the price of crude oil over USD 100, GCC petrodollars will be driving new products, services, players and Islamic Capital Market.

Where do we stand in Mauritius? According to Mckinsey’s Development and Trends grid in Islamic Finance, Mauritius is placed in the 1st cluster “Wait and See and Explore Market Potential”.

Move towards a knowledge economy

The global Islamic finance industry has evolved from a faith-based to a business driven industry for all. One of the underlying strengths inherent in Islamic finance is that it brings together those parts of the world with surplus funds in search of investment opportunities and those with financing requirements creating tremendous new opportunities. Personal wealth in the Middle East is estimated to rise to US$2.2 trillion by 2011.

Mauritius Financial Sectors could well be positioned to capture the Islamic Financial Services growing markets. Additionally and potentially, takaful (Islamic insurance) has yet to takeoff. Takaful’s penetration rate amongst OIC countries is only 5%. In the long run, potential Islamic Finance Services may target the health, construction, energy and agriculture sectors in Mauritius under real estate investment trust (REIT). Recently Malaysia was the first to introduce two REIT, Al Aqar and Al Hadharah, which targeted the health and plantation sectors. Others products include Islamic Wealth and Fund Management and Human Capital Development which are in line with the Mauritius Financial Services Commission’s objectives and the Minstry of Finance’s strategy to move towards a knowledge economy.

Development in the ifs sector

While there are several challenges which may inhibit growth globally and locally, such as the Shariah compliant, Accounting and Auditing Orgnisation for Islamic Financial Institutions Standard (AAOIFI), regulatory and tax framework, and shallow depth of know-ledge and inexperienced talent of Islamic Finance Services, less risky and common Islamic financial schemes such as Ijarah (leasing), Musharakah (partnership) and Credit Sale (Bai `Mu’ajjal) could be sporadic development in the IFS sector in Mauritius and benefit the SMEs and small entrepreneurs in the short run. A recent survey shows that «only 14% of assets within the SMEs are on loan/lease, the equity based is high».

It is believed that the opera-ting environment of Islamic Finance in Mauritius will initially depend on how the commercial banks will explore these opportunities in the region, taking into consideration that a quarter of the 19 commercial banks established here are already offering Islamic Finance Services abroad.

(by Muniruddeen LALLMAHAMOOD in iExpress)

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