Kamis, 27 Agustus 2009

Islamic Finance News: Conquering the West

Dear Ali Sakti,

This issue’s focus includes an in-depth look at developments related to Islamic finance in France and Luxembourg. The outlook for this sector continues to be encouraging in the rest of Europe too, with advances being made in the Netherlands, Germany, Italy and Spain, and Malta wanting to be the Mediterranean’s Islamic finance center.

While London is trying to brand itself as the industry’s hub for Europe, Paris is determined to challenge this. It has been tinkering with its legal lattice to facilitate this; as our reports note, French law is based on principles that are similar to those of Shariah.

Luxembourg, one of the world’s leading financial centers, is also positioning itself to be the premier European center for Islamic finance. Islamic finance in Luxembourg has seen remarkable growth, and can lay claim to the fact that it hosted the first Islamic financial institution in a non-Muslim country, way back in 1978.

Paving the way in Europe are domestic and Middle East Islamic finance institutions and their focus is almost entirely on asset management. That could change in the coming months, should the initiatives being pursued in the conventional finance sphere come through.

President Nicolas Sarkozy of France has outlined plans for a national loan to rebuild and redesign French industry, forming a blue ribbon panel to work out how best to spend the money. The bond is speculated to raise between EUR80 billion (US$114.1 billion) and EUR100 billion (US$142.6 billion).

The funding will go towards the advancement of a knowledge economy, competitiveness and industrial innovation. Sarkozy said the money would be used to set France’s industrial focus in a high-tech direction, such as “nanotechnology, biotechnology and energy storage”. Aren’t projects in these fields right up the alley of the Islamic finance practitioners?

While the conventional finance sector will most likely get the lion’s share of the financing, it would be good to see Islamic finance institutions also making a case for their involvement. For instance, part of the bond issue could be in the form of Sukuk, which could draw participation from the Middle East and Asia. The Islamic finance players could also be competitive in bidding for the various “real economy” projects and activities.

The conventional sector is providing other opportunities as well, mainly due to its stubbornness to stick to its old ways, showing that it refuses to learn from the global financial crisis. The talk is once more of "flexibility" and "innovation", of "liquidity" and "competitiveness". These are among the seductive words the conventional players had used to lure clients in the “good old days” and these words are being more frequently used now.

Conventional finance, going by the trend it is sticking to, is in fact on a “beggar thy neighbor” strategy as opposed to the “prosper thy neighbor” approach of Islamic finance.With Europe continuing to be plagued by problems caused by conventional finance, it is developing into a land of plentiful opportunities for Islamic finance practitioners. However, for them to establish a gainful presence, they need to show not only initiative but also out-of-the-box thinking.

Best regards,
IFN team

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