Islamic finance growing globally, particularly in the GCC and U.K., although the industry is not completely immune from the credit crisis

The rapid growth in Islamic finance has begun to receive interest from Western financial institutions and others like rating agencies (e.g. Moody's and Standard & Poors), consulting companies (McKinsey) and news organizations (Financial Times and Bloomberg). This is a credit to the industry's rapid growth and potential to emerge from being a niche industry to one that could become significant in the global financial system. The Islamic financial industry is also expanding into Europe, particularly the U.K. (although there are many other cities vying to become a hub in the global Islamic financial industry) The Independent newspaper in the U.K. has an interesting article on the different Islamic financial products available in the U.K. A recent event called 'Microfinance in the Islamic world' was held at the House of Commons and featured a presentation by Muslim Aid, a charitable organization which has done a significant amount of Shari'ah-compliant microfinance. The conservative nature of Islamic financial products has increased their attractiveness as more risky products have run into problems recently.

The first multi-asset class investment fund was launched on the AIM in London last Friday trading under the ticker FSF.

France is continuing the process of figuring out legislative, tax and regulatory changes needed to rival London for the center of Islamic finance in Europe. Despite having a Muslim share of the population many times that of the U.K., Islamic finance is still nearly nonexistent in France. Switzerland, although prominent in international finance, has lagged behind on Islamic finance.

AAOIFI is developing a governance standard for corporate social responsibility. This is a very important step because it will provide a way to monitor whether Islamic financial institutions are meeting their ethical responsibilities that are the core of their differentiation from most conventional financial institutions.

The Indonesian rupiah-denominated sukuk will be placed in mid-August with a listing expected on August 27th. Doha Bank has delayed their planned $1 billion sukuk to develop an exchange for carbon emissions trading in the Middle East because of poor market conditions. Thai property developers should finance their businesses using sukuk, according to the former head of the Islamic Bank of Thailand Dheerasak Suwannayos. Since 2006, the growth in sukuk has outstripped the growth in conventional bond issues in the GCC, and almost half of this has financed real estate projects.

The Netherland Antilles are exploring legal and regulatory changes needed to attract Islamic finance.

Islamic economist Humayon Dar is working with a group called Charity Bank to develop Shari'ah-compliant financing for non-profit organizations in the U.K.

Dubai Islamic Bank recently launched a Shari'ah consulting group, Dar Al Sharia, to provide research and development and consulting services in Islamic finance transactions.

Islamic banks in the GCC are planning expansion into North Africa and Asia to find new opportunities to grow.

NPR has an article on Islamic home finance in the United States.

IBF Net is launching an institute studying Islamic microfinance in the state of Orissa in India. I have had the pleasure of speaking with one of the founders of the Institute of Microfinance and Development, Dr. Mohammad Obaidullah who is also a Senior Economist at the Islamic Development Bank, and I anticipate that they will make a very positive impact.

Islamic credit cards are becoming more available, although they differ little from conventional credit cards. Usually, the either offer a line of credit with a fee based on the amount used, a murabaha structure where the card issuer 'owns' the goods purchased for an instant when they are purchased and charge a markup, or a lease-buyback where they own the goods until they are paid for and 'lease' usage. They seem to be virtually indistinguishable from conventional credit cards in impact, more so than other Islamic finance transactions where there is a chance for the Islamic finance company to take ownership.

HSBC enters Islamic microfinance market

HSBC Amanah, the Islamic finance part of HSBC, announced that it will launch a pilot project for Islamic microfinance in Rawalpindi, Pakistan with Islamic Relief. There were few details about how the microfinance will be carried out, but HSBC will provide the Shari'ah advisory and product structuring part and Islamic Relief will screen beneficiaries and administer the program. Dinar Standard discussed the opportunities for Islamic finance, particularly Islamic microfinance, to use the rapid growth in mobile phones to expand.

The Principal Financial Group becomes the latest western financial firm to enter Islamic finance, announcing that it will work with CIMB Islamic in Malaysia.

Islamic finance will also soon be available in the Maldives.

A Malaysian paper presents a basic introduction to Islamic finance using the example of how takaful differs from conventional insurance. An Kenyan paper features an article by the CEO of Gulf African Bank, an Islamic bank in the country, about the idea of 'time value of money' in Islamic finance.

Hong Kong will likely not change the tax law before the Airport Authority issues the first sukuk from a government agency in the city-state, although taxes (mostly asset transfer taxes) will be waived to ensure that the sukuk can be competitive with a conventional bond.

Failaka, a company commonly known for its survey of Islamic mutual funds around the world, recently published a guide to Shari'ah scholars with biographical, educational and professional details about the 100 most active Shari'ah scholars in the world.

Islamic financial firm Siraj Capital is launching a web portal on Islamic finance called Sukuk.net to provide information on the rapidly growing area of finance.

CPI Financial has an article on the higher than market returns seen in Shari'ah-compliant indexes in the second quarter of 2008, largely due to their exclusion of financial stocks.

Birmingham, UK is becoming the hub for retail Islamic finance in Europe and business there are encouraged to enter the Islamic finance market.

The Indonesian sukuk will be launched using an ijara structure using Finance Ministry assets. A domestic local currency sukuk will be issued while an international, dollar-denominated one will follow in October. UPDATE: Reuters reports that Indonesia will push back the dollar-denominated international sukuk to November because of lower business activity during the month of Ramadan.

Islamic financial institutions face risks not only from cloning conventional products in Shari'ah-compliant forms, but also from cloning business models of established Islamic financial companies says the governor of the Central Bank of Bahrain.

Sukuk, India, France, Kenya, growth in Shari'ah-compliant equity investing

North Africa is beginning to see more growth in Islamic finance, although the higher cost of Islamic finance products is proving to be a greater hurdle than in the GCC countries, where consumers were less sensitive to cost initially. However, like the GCC where consumers are becoming more sensitive to the cost of Islamic financial products, some banks in Tunisia and Morocco have begun to offer Shari'ah-compliant products which are cost competitive with similar conventional financial products.

During the recent worldwide boom in equities, Islamic finance was seen to be underperforming conventional alternatives, but the credit crunch and slump in equity prices has led to changing opinions about the relative performance and riskiness of Shari'ah-compliant versus conventional investments says Jahangir Aka, senior executive of SEI in the Middle East. The avoidance of the financial sector is just one reason these funds have been more stable than conventional alternatives over the previous year. The greater due diligence and 'buy and hold' investment approach, along with the avoidance of highly leveraged companies, has led to more robust returns in periods of instability in the financial markets. Gartmore, a UK-based investment company, has also pointed out that investors see greater safety in Shari'ah-compliant methods of financing due to the recent volatility and Islamic finance's reliance on 'real assets' to underpin financing.

The lack of market makers in sukuk has slowed the development of a secondary market and made it difficult to determine current value of outstanding sukuk issues. The lack of qualified professionals, as well as scholars, is still currently threatening the sustainability of current growth rates in Islamic finance. This shortage has spurred the development of new academic and professional training schools for Islamic finance professionals. One group of professionals who are entering Islamic finance rapidly is lawyers.

Islamic banking advisor Lahem Al-Nasser argues that many of the new products offered by Islamic banks are nothing more than new marketing methods, like a credit card in Saudi Arabia that earns airline miles. Instead, Islamic banks need to encourage more creativity by not focusing too much on expenditure for new product development or dismissing those who develop unsuccessful products, which he believes "cripples creative thinking". The growth in Islamic finance products and development of new products, however, is not entirely without controversy.

A contributor to CPI Financial discusses the different ways to replicate short selling in Shari'ah-compliant ways.

Despite having great potential for developing a market for Islamic finance, France has been slow to encourage growth in the industry, says a special comment from Moody's Investors Service. In contrast, Kenya has seen its Islamic financial industry growing rapidly as banks begin to offer a growing range of Islamic finance products. India's Islamic finance industry is just beginning to start growing rapidly and some companies like Reliance Money, have begun expanding into the GCC offering Islamic financial products.