Islamic Finance Regains Momentum

By Platt, Gordon | Global Finance, July/August 2009 | Go to article overview

Islamic Finance Regains Momentum


Platt, Gordon, Global Finance


Sukuk issuance is rebounding as investor confidence returns to the GCC region.

The global financial crisis has accelerated what already was a growing interest in Islamic finance and has created new opportunities for Islamic financial insti- tutions as a result of problems in the conventional banking system, bankers say. "The financial crisis is creating opportunities from two sides," says Emad Al-Menaie, chairman and managing director of Liquidity Management House, which is owned by Kuwait Finance House. "First, there is an ongoing return to basics in financial ar- rangements, with demand for transactions backed with the appropriate assets, which is a hallmark of Islamic finance," he says. "Bankers are looking more closely into the operating side of the businesses they finance and the capacity of their customers to produce the right revenues for a particular financial obligation," Al-Menaie explains. "Second, investors are attracted to Islamic financial instruments because of their income-generating ability and capita] appreciation," he says.

Kuwait Finance House, the largest Islamic lender in Kuwait, established Liquidity Management House in January 20(18 to issue, purchase and trade sukuk, equivalent to Islamic bonds, with the goal of creating a global secondary market. "The recent issuance of sovereign sukuk issues by Bahrain and Indonesia as well as the introduction of new global investment funds show that the market for sukuk is capturing momentum again," Al-Menaie says.'LThe more players there are, the more opportunities there are for trading," he adds.

European Finance House, the London-based affiliate of Qatar Islamic Bank, announced the launch of its open-ended Global Sukuk Plus fund in May.The dollar-based fund is actively managed and offers weekly liquidity. "The sukuk market is now a global phenomenon," says Mark Watts, head of asset management at European Finance House. "The global sukuk fund allows investors to tap into returns and profits not previously available, as the scale and diversification of investment have increased," he explains.

The fund is predominantly invested in sukuk, comprising sovereign, quasisovereign and corporate issuers. Value could be added through investment in shariah-compliant debt or credit investments, such as syndicated murabahah (a form of cost-plus-fee financing), trade finance and structured investments.

Islamic financial institutions have weathered the global financial crisis reasonably well, says Ala'a Al-Yousuf, London-based chief economist at Gulf Finance House. The vast majority of shariah-compliant institutions have been conducting their business in a conservative manner, and they avoided credit derivatives and other complex structured assets that turned toxic for conventional banks, Al-Yousuf says. "Islamic principles require the structuring of financing facilities as profit-sharing agreements," he notes. "As a result, the lender needs to fully understand the business of its customers," he says.

Bankers in general need to relearn a lot of lessons about sound banking that they may have forgotten, according to Al-Yousuf. "They need to go back to basic tenets of finance and not forget the fundamentals of credit analysis and knowing your customer," he says.

Avoiding Smoke and Mirrors

"The explosion of credit default swaps and similar slice-and-dice credit techniques in conventional banking was a smoke-and-mirrors charade that undermined the Basel capital-adequacy requirements because there was no link to the ultimate lender," Al- Yousuf says.

Bahrain, with its strong regulatory regime, has emerged as the global capital of Islamic finance, according to Al- Yousuf. "Bahrain has the largest concentration of Islamic financial institutions in the Middle East," he says. Bahrain's sale of a sovereign $750 million five-year sukuk in June, which was increased from an originally planned $500 million, attracted strong demand from investors. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Islamic Finance Regains Momentum
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.