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It’s all about Syariah

by Ghaz Ghazali. Posted on September 11, 2011, Sunday

The Islamic financial industry has been around for more than a millennium, overcoming two disastrous financial downturns in the last two decades and most likely will withstand the current US/ European debt crisis. BizHive Weekly discovers the strength in syariah-compliant products.

STRONG SYARIAH SYSTEM: A Middle Eastern man looks up at a stock-screen monitor. So far, Islamic banking has moderately escaped the fallout from recent global financial crises, according to Dawood. — Reuters photo

Today eerily marks the tragic day that befell New York 10 years ago, when two hijacked commercial airlin­ers crashed into the twin-tower World Trade Centre, killing nearly 3,000 lives and destroying what was then regarded as one of the financial world’s most iconic landmarks.

It also tarnished the image of Islam in the eyes of those who were deeply affected, or made confused by the tragedy.

To some, Islam was the extreme terrorist – even its financial system was believed to be channelling funds towards terrorism.

“In the West, some eye Islamic financial products with suspicion after the 9/11 attacks,” said Ashraf Bseisu, group chief executive officer of Bahrain-based financial services group Solidarity Company BSC.

“On this, the dreaded link was that very word ‘Islam’ where in the West, it held negative connotation.”

Obviously, it took quite some time for Islamic finance to recover from such a negative publicity.

Nonetheless, the whole situation somehow immunised the industry against other attacks.

“Islamic finance, or the rudimentary form of it, has been around for more than 1,400 years,” said CIMB Islamic Bank Bhd’s (CIMB Islamic) chief executive officer officer Badlisyah Abdul Ghani. “It is likely that it will continue to be around for another millenium.”

CIMB Islamic – the Islamic division of CIMB Group Holdings Bhd, one of Malaysia’s two banking goliaths – remained the key player in the nation’s syariah banking industry, garnering 13.8 per cent from the group’s total loans of some RM168.85 billion to date.

Resilient sector

Islamic financial products might not be an obvious first port of call for investors in troubled times.

CIMB Islamic’s Badlisyah also mentioned that the industry had taken quite some time to pick up.

“When Islamic finance was introduced in Malaysia, it took a few years before other players started to pick up the business, and the industry began to see a lot of momentum,” he noted.

Highly touted as a viable option to conventional banking, Islamic finance did face some setbacks in its efforts to make a mark outside its core markets, as its reputation was stained by Dubai’s debt crisis in 2009.

At the time, Islamic finance was struggling to attract investors’ attention with emerging markets flush with funds, in contrast to 2008 when the global crisis shut down credit markets and prompted a search for alternative sources of finance.

“Islamic financing has been clouded by the sovereign debt issues in Europe and quantita­tive easing has resulted in a lot of funds from the US moving into various emerging markets,” said Affin Fund Management Bhd’s head of marketing and business development Anuwar Idris in a note.

Notwithstanding this, sukuk – or ‘Islamic bonds’ – has been seeing sustained momentum of late. In the middle of this year, Malaysia – currently the world’s largest issuer of sukuk – announced a US$2-billion (some RM6 billion) global sukuk offering, deemed as the largest Islamic bond offering since December 2007.

This would add on to the RM30.6 billion already raised so far, bringing the total close to the record RM38.7 billion raised in 2007, according to data compiled by Bloomberg. Last year, the offerings totalled RM10.9 billion.

“The current level of activity in sukuk is a reflection of the growing maturity of a market that only took off in 2002.

“It also reflects the wider recovery in the Gulf following the shocks of Dubai’s financial crisis,” said head of Islamic finance at Rothschild, Raphael de Ricaud, in an interview.

Similarly, Mohammed Dawood, head of Islamic capital markets at HSBC noted in a report that the exercises were good examples of an investor base that would be immune from broader volatility.

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