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Wednesday, 10 October 2012

Global Islamic Finance Matures and Grows

As banking in line with Islamic law matures, partnerships not rivalry feed the industry’s growth.

According to global consultancy Ernst and Young, there are more than 390 Islamic banks and financial institutions based in 75 countries.
The Emirate of Dubai will soon have a new player in the field of banking in line with Islamic law or Shari’ah.
Earlier this month H. H. Sheikh Maktoum bin Hasher Al Maktoum, executive chairman of the United Arab Emirates’ (UAE) oldest investment bank, Shuaa Capital, said that his bank applied for an Islamic banking license. “We plan to launch Islamic banking in Q-1 of Y 2013.”
Shuaa Capital was hit badly by the financial crisis as trading volumes at capital markets fell. In Y 2011, the bank reported a dismal return of equity of – 19.9%.
“We target the market for Shari’ah-compliant financing for small and medium enterprises (SMEs) as in the UAE only 4% of SME financing comes today from banks,” said Sheikh Maktoum, who is a member of Dubai’s ruling family Al-Maktoum.
Because Shari’ah forbids interest, banks become partners of those businesses they finance and share profits, instead of lending money with interest.
It is of no coincidence that Shuaa opts to enter Islamic finance now. The market celebrates a strong comeback. The impressive growth in Islamic bonds, known as sukuk, has moved banking in line with Islamic law or Shari’ah back into the spotlight of global finance.
According to Kuwait’s largest Islamic financial institution Kuwait Finance House, the market for Islamic bonds grew to US$210.8-B, up by 40.1% Y-Y.
Forgotten are the woes when Dubai state-owned developer Nakheel almost defaulted on a US$3.52-B sukuk in November 2009, only a guarantee worth US$10-B issued by Oil-rich Emirate Abu Dhabi saved Nakheel and Dubai from an embarrassing oath of disclosure.
(Live Trading News / 09 Oct 2012)
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