Monday, September 10, 2007

Offshoring beneficial or detrimental to Islamic finance image in the West?

Barclay's, with the assistance of Shariah Capital, is launching Islamic hedge funds, which provide investors with exposure to "six or seven long-short hedge funds". Given the Shari'ah problems likely to arise from investing in hedge funds which take short positions, it is not surprising that Barclay's has an aversion to transparency similar to much of the hedge fund industry. The rationale by which the product is deemed Shari'ah-compliant is proprietary.

Does offshoring of Islamic banking make sense? A Reuters article about the drive by the Cayman Islands to capture some of the Islamic finance market addresses the additional scrutiny Islamic finance receives in the U.S.:
"Islamic finance still struggles outside the Middle East against the perception, widespread since the Sept. 11 attacks on the United States, that it is tainted by terrorist funds. [..] 'Sharia law or no sharia law, all funds have to be regulated by the same anti-money laundering and anti-terrorism laws as traditional funds,' said Rod Palmer, a managing partner of Walkers in Dubai."
While the additional scrutiny given to Islamic finance is probably unneccessary (based more on misconceptions and misunderstandings), it might be easier to clear these misunderstandings up if the industry was concentrated in on-shore financial centers. It would also provide a larger constituency to lobby governments to introduce financial regulations that do not discriminate against Islamic finance, as has already occured in the U.K. around home financing, banking, and sukuk.

The head of Malaysian Affin Islamic Bank says that Malaysian banks should expand regionally to meet the demands throughout Asia for Islamic banking.

Hong Kong wants in on the Islamic bond market

The growth of Shari'ah-compliant banking has greatly increased the demand for unique banking software for Islamic banks. Most Islamic banks are either using modified conventional banking software, although a few have probably taken the expensive dive into custom-made Islamic banking software. Perhaps the growth of Islamic banking-specific software could reduce the trend of just 'Islamizing' conventional financial products.

Bahrain Islamic Bank established a separate real estate company called Abaad Real Estate. With the recent property price collapse in the U.S. due to massive overbuilding and under-regulated finance companies, I can't help but start to worry about when a similar thing occurs in the GCC region, where new real estate finance companies spring up with suprising frequency.

1 comment:

Mohan said...

Wonder why the question of whether Offshoring beneficial or detrimental to Islamic finance? Did you happen to read the front-page story on Wall Street Journal that features the story of Wipro's CEO, Azim Premji: Wall Street Journal on Premji and Muslim community