A proposed new mosque near Ground Zero in New York may symbolise a new berthing for Islamic ideals—and finance—in the heart of arguably the world’s most important financial centre. Michael Bloomberg, Mayor of New York City and majority owner of Bloomberg L.P., the global media colossus, is an adamant supporter of the mosque.
A proposed new mosque near Ground Zero in New York may symbolise a new berthing for Islamic ideals—and finance—in the heart of arguably the world’s most important financial centre. Michael Bloomberg, Mayor of New York City and majority owner of Bloomberg L.P., the global media colossus, is an adamant supporter of the mosque. And with his media company in the forefront of global Islamic finance reporting, he just might be a champion of Islamic finance too.
Islamic finance is spreading around the world. Governments realising its potential for profits and jobs are duelling with each other to create the best regulatory and supportive framework for it. Western money centres with growing participation in Islamic finance include London, New York City, Paris, Frankfurt, Tokyo, and Toronto. Islamic financel activities in these centres usually encompass the licensing of Islamic banks and offering of Shariah-compliant financial products that include bank accounts, home loans, and bonds.
Among countries, the growth and acceptance of Islamic finance varies considerably. For obvious reasons, it is in Muslim countries where its growth appears faster. However, the financial storms of recent years have earned it an increasing attention globally.
The ethics and morals behind Islamic finance and Shariah-compliant investing have similarities to ethical investing and finance, yet with significant differences too. Islamic financial structures avoid gambling style speculation and interest rates, and all trading, loans, and investing have to involve real assets.
The estimates vary as to the size of Islamic finance globally. Abdul Rahman Al Baker, executive director of financial institutions supervision at the Central Bank of Bahrain (CBB) believes it to be now more than $1.5 trillion. Bloomberg reports that Moody’s research indicates global Islamic finance totals about $950 billion. Malaysian based Islamic Financial Services and Saudi Arabian Islamic Development Bank are projecting the market to grow to $1.6 tn by 2012. Going even further is another report quoting Moody’s that Islamic finance could eventually reach $5 tn.
The countries with the largest Shariah-compliant banking assets are Iran, Saudi Arabia and Malaysia.
However for 2010, Bloomberg says that Malaysia leads the way in the international issuance of Islamic bonds. (These bonds, called sukuk, are asset-backed and the holder usually receives a percentage of profits rather than interest.)
By August 26 of this year, Bloomberg reported that Malaysia had 72 per cent of the total $9.8 bln issuance of international Islamic bonds. The Gulf States issued $2.5 bln representing about 26 per cent of the total. Media reports also said that Gulf sukuk issuance is down by 24 per cent from last year due to Dubai’s real estate problems and the sukuk defaults by Saad Group (Saudi Arabia) and Investment Dar (Kuwait).
The money centres with the biggest trading in sukuk are London, Dubai and Malaysia.
Bloomberg elaborates on the size and significance of Malaysia’s quest to lead in Shariah-compliant finance. According to Bloomderg's reports, Malaysia’s Shariah-compliant assets are around $93 bln and account for 19.6 per cent of its banking industry. Moreover, the country is attracting foreign funds and asset managers with Shariah-compliant operations. These include Saturna Capital, Nomura Securities, Reliance Capital Asset Management, Franklin Templeton GSC Asset Management Sdn., HSBC Holdings Plc and Standard Chartered Plc. A total of 14 licences have been issued to foreign companies by the Malaysian government for Islamic fund-management activities.
Bloomberg also says that Malaysia last year established a commodities trading platform based on ‘murabahah,’ where the prices are governed by a negotiated profit margin that is Shariah-compliant, and that Bahrain is establishing a similar trading platform that will also include the trading of sukuk, real estate investment trusts, and options.
Other recent developments in Islamic finance include: Bloomberg reports of Turkey’s quest into Islamic finance which began in April with a $100 million sukuk issue by Kuveyt Turk Katilim Bankasi AS. According to Lawyers Weekly, the U.K. completed in August its first corporate sukuk deal of $10 mln for International Innovative Technologies Limited (IIT), while France wants to issue its first sukuk offering this year using French law and is building a Shariah-compliant regulatory framework that is compatible with foreign currencies for banking and investment applications all over Europe.
Shariah-compliant mutual funds now exist in several countries including the US, Canada, and India. Interestingly, some precious metals mutual funds are becoming Shariah approved as well. Furthermore, according to ETFdb.com, “Shariah compliant ETFs (exchange traded funds) are becoming popular investment options around the world – over the last year they have been introduced in Britain, India, Singapore, Malaysia, and South Africa.”
All Shariah compliant financial products have to be approved by Shariah scholars. Concerns surround the lack of standards and uniformity regarding the selection and qualifications of these scholars. “Banks try to search for competent [Shariah] advisers, sometimes they get the right person, sometimes they get the wrong person,” said Aznan Hasan, the president of the oversight committee of the International Shariah Research Academy for Islamic Finance in Kuala Lumpur, Malaysia, in another recent Bloomberg report. His organisation is endeavouring to create a worldwide professional organisation to certify and organise Shariah finance scholars.
In some respects, Mayor Bloomberg of New York and his media empire’s global coverage of Islamic finance are reflective of a rising consciousness in the world of finance. In a financial world where greed has run amok and deceit and dishonesty is commonplace, the morality and ethical basis of Islamic finance may have much to offer. That is being realised as countries, East and West, North and South, Muslim and non-Muslim, compete to adopt and integrate Islamic finance into their own financial systems.
Islamic finance is beginning to rise from its ancient past.