Japan Adjusting to Islamic Finance

CAIRO — The Japanese government is adapting its banking regulations and markets to fit with the rules of the Shari`ah-compliant lucrative industry of Islamic finance.

"Whilst Islamic finance is quite an interesting subject, it is simply one area they'll want to encourage," Stuart Porter, a partner at PwC Tokyo, one of the world's largest professional services firms, told the Financial Times on Monday, June 16.

As Islamic finance grows by leaps and bounds, Tokyo hopes to one day join a handful of capitals competing to become the industry hub.

To do that, the government has been working to adapt the financial rules to that of Islamic finance.

The Financial Services Agency (FSA), the government's body overseeing banking, securities and exchange, has introduced amendments to the banking law slated to be in place within about six months.

The amendments would make it easier for Islamic finance institutions to operate.

Last September, Japan's central bank joined the Islamic Financial Services Board, an international standard-setting body, as an observer to deepen its knowledge about Islamic finance.

Islam forbids Muslims from usury, receiving or paying interest on loans.

Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Interested

The Japanese private sector has increasingly been showing an interest in Islamic finance.

Mitsubishi UFJ financial group said it is preparing for when Japanese legal amendments are in place and has been building up a team in anticipation of these changes.

Nomura Asset Management, Japan’s leading investment company, is also planning to introduce products in the area once the amendments are in place.

Other companies have already taken steps to join the Islamic finance drive.

Last month, Toyota, the giant Japanese car manufacturer, announced a planned foray into the Islamic bond market.

It intends to issue $306 million to raise funds for its auto leasing and loans business in Malaysia, the hub for Islamic financial services.

Also last month, Daiwa Asset Management, the second largest asset management firm in Japan, and the global index provider FTSE Group launched the FTSE Shari`ah Japan 100 Index, which includes Japan's top 100 Shari`ah-compliant companies.

In 2007, Japan's largest insurer and credit provider Aeon Credit was the first financial service corporation in the country to issue Islamic bonds or sukuk.

Islamic finance is one of the fastest growing sectors in the global financial industry.

In defiance of the credit crunch, the global Islamic finance market has grown about 15 percent in each of the past three years, and is now worth about $700 billion worldwide.

Its assets are predicted to grow to $1 trillion by 2013.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide.

The heavyweights of global finance, including Citigroup, HSBC, Deutsche Bank and others, have affiliates devoted to Islamic finance.