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.

Shari'ah-compliant index in Doha, Islamic banking in Pakistan, Malaysia

The Doha (Qatar) Securities Market has a new index tracking the Shari'ah-compliant securities listed on the exchange. The index is created by the Doha Investment House and is called the 'Investment House Islamic Index'

Pakistani Prime Minister Shaukat Aziz says the government is actively promoting Shari'ah-compliant banking in Pakistan.

The Malaysian Industrial Development Finance Bhd (MIDF), designed to promote the development of the nation’s industrial sector through the provision of financing for manufacturing-based small and medium enterprises, may convert into an Islamic bank.

Dual Arabic-English registration in the Cayman Islands highlights the reliance of the Islamic finance industry on offshore financial centers.

Islamic finance may enter the Netherlands, IDB/ICIEC, Brunei issues 1-year sukuk & offshore banking

The Dutch goverment will look into ways to attract Islamic finance to the Netherlands, a country which has seen its Muslim population grow significantly to almost 6% of the total population.

The Islamic Corporation for Investment Guarantees and Export Credit (ICIEC) opened its first office outside of Saudi Arabia in Dubai. The Islamic Development Bank (IDB) approved grants for projects including education and healthcare totaling $833.8 million.

Brunei issued $30 million of one-year Islamic bonds. The issue is the first of one-year bonds; previous Islamic government bonds were 91-day issues.

Current structure of Islamic finance has encouraged competition between offshore hubs for registration of the special purpose vehicles (SPVs) and asset management firms. By allowing dual English-Arabic registration the Cayman Islands has increased the appeal of it over other offshore locations.

Moroccan Islamic finance & other news

Islamic finance in Morocco

Morocco's central bank, Bank Al-Maghrib, will allow ijara, musharaka and murabaha products to be offered by banks in Morocco. A statement released by the Central Bank said Islamic finance will "allow a widening of banking services and contribute to a higher rate of banking in the economy"

Other News

Kuwait Global Investment House launches an Islamic fund. The $350 million fund will invest in "Gulf Arab companies that are compliant with with the Islamic sharia principles".

Dubai Islamic Bank aims to raise $800 million for an Islamic private equity fund to invest in energy & telecom projects.

Islamic finance will continue to rely on the Cayman Islands as a center for sukuk because of its light regulatory environment.