Islamic finance 'is set to grow'

By ARTHUR MACDONALD

The subprime crisis in the US is increasing interest in Islamic finance because Sharia investment avoids interest-related risks, according to experts at the Islamic Bank of Asia (IB Asia).The bank, which is based in Singapore and recently opened a GCC regional office at Bahrain Financial Harbour, has more than 30 regional shareholders.

Two of the bank's pre-eminent Sharia board members have seen a steadily growing stream of interest from GCC investors, Muslim and non-Muslim, for Islamic banking products, as they seek new investment opportunities.

IB Asia Sharia board members Shaikh Nizam Yaqouby and Dr Mohammed Daud Bakar say that while changes in the global investment climate are driving demand for Islamic banking, it is the development of innovative Sharia-compliant products that will help grow the industry.

"Islamic Sharia scholars have led the way in innovation. Investors now demand more than just debt finance in their products. They participate in the assets and this creates real economic value," said Bahrain-based Shaikh Yaqouby, an internationally-acclaimed Islamic scholar and teacher of Tafsir, a scientific study that focuses on the interpretation and explanation of the Quran.

"More investors, whether affected directly or indirectly by the subprime crisis, are attracted to investment vehicles, which are underpinned by an inherent immunity from risk.

"As Sharia-compliant banking forbids the purchase of debts, it is therefore one of the options that investors are turning to."

"The demand for Islamic investment vehicles in certain categories currently exceeds supply," said Dr Bakar, chairman of the Sharia Advisory Council at the Central Bank of Malaysia.

As an example, the global Sukuk market is increasing at an astonishing average of 40 per cent per annum, fuelled by record investor numbers turning to Islamic banking.

The Sukuk allows investors to participate actively and bear the risks, which can be minimised but never eliminated, being inherent in all investments, alongside the rewards.

"While market sentiment remains cautious, we still see a growing interest from global parties in tapping into the increasing flows of liquidity from the Middle East," said chief executive officer Vince Cook on a visit to the Bahrain office yesterday.

"Also, the robust levels of transparency and risk management inherent in Islamic finance make it less susceptible to the ongoing market turmoil and hence a more attractive investment option."

IB Asia has a unique shareholding structure that includes DBS bank, a leading financial services provider in Asia and 34 prominent GCC shareholders, and is based in Singapore.

IB Asia is well-positioned to open up new investment opportunities in Asia for GCC investors.

In less than a year, IB Asia has focused on cross-border transactions securing a range of significant business with several prominent GCC companies, including three Kuwait-based companies, the International Leasing and Investment Company, the National Industries Group and the AREF Investment Group - and Barwa Real Estate Company based in Qatar.