Friday, December 15, 2006

Deutsche Bank predicts 15% p.a. growth in Islamic finance, Islamic socially responsible investing, REITs

Islamic finance market to grow 15 percent--Deutsche Bank

"Islamic finance market 'to grow 15pc'", TradeArabia, December 15, 2006

Deutsche Bank expects the market for Shari'ah-compliant products to grow by 15 percent annually. Discussing the Islamic finance market, Stefan Kirsch, business manager in the bank's international private wealth management arm:
'We consider ourselves market leader for Islam-compliant financing deals, at least regarding the number of products on offer,' he [Mr. Kirsch] said.

He said some Islamic products were also interesting for risk-averse non-Muslims.

'Islam-compliant equity funds, which were launched before the crisis, performed better than traditional ones -- they didn't buy into highly-indebted telecom firms,' he said

Mr. Kirsch's explanation that risk-averse non-Muslims would be interested in Islamic financial products is peculiar since the restriction on indebtedness and the change in the indebtedness ratio from debt-to-assets to debt-to-market capitalization, as well as the fixed ceiling of 33 percent skewed Islamic equities in favor of tech companies during the bubble years as their debt tended to be low and their market capitalization was quickly rising. Furthermore, since the denominator used to calculate indebtedness was market capitalization, as the bubble collapsed, the funds were forced to divest their holdings near the low point of the share price. The Islamic equity index managers were not allowed to wait for the prices of their tech stocks to rebound, hardly an appealing portfolio profile for a risk-averse investor.

This is not to say that Islamic finance (and in particular, Islamic equity funds) cannot be popular among non-Muslims. The focus of Islamic finance on avoiding the haram industries (e.g., tobacco, alcohol, gambling and interest-based financial firms) makes the stock pool from which investments can be chosen very similar to socially responsible mutual funds. The heavily engineered, higher priced Shari'ah-compliant financial products are likely to have a lower appeal for non-Muslims not concerned with strict Shari'ah-compliance. On the other hand, products build around the ethical foundations of Islamic scholarship would be much more likely to have appeal with non-Muslims. Reducing the exploitative aspects of the borrower-lender relationship (say, by adopting a more mutual approach as credit unions do) would have much more appeal to non-Muslims than products approved by Shari'ah boards that are identical in every other way to conventional financial products.

Indonesian Islamic finance

"Shariah Banking: For richer or poorer", Yemen Times, December 15, 2006

An article by Dr. Terry Lacey (who wrote an editorial a couple of weeks ago in the Middle East Times on the socially responsible focus of Islamic finance).

Islamic REITs

"ARB Expects REIT VAlue To Reach RM1 Bln Within Two Years", Bernama, December 15, 2006

Amanah Raya Bhd, a Malaysian government-owned trustee company plans on launching an Islamic REIT by the second half of 2007, according to an article in Bernama, the Malaysian national news agency. The article quotes the company's managing director Datuk Ahmad Rodzi Pawanteh.

No comments: