Islamic Finance is a huge new market for banks and financial services. It doesn’t only offer possibilities for brand new services and products, but it’s also among the fastest growing regions of finance. Regardless of the global economic slowdown, analysts estimate that the marketplace for Islamic assets will grow by ten to fifteen percent in ’09. Although this is a lot slower because the twenty to thirty percent growth familiar with 2008, it nevertheless is a vital chance for banks, specifically in Hong Kong. Hong Kong makes an item of becoming an attractive place to go for investors and marketing participants of Islamic Finance.
Having a worldwide market size US$400 billion with no obvious leader looking for Islamic Finance, Hong Kong stands to achieve significantly from boosting its market presence, infrastructure and abilities in this region. While Dubai, Kl and London have the ability to significant markets for Shariah products, no-one can claim global leadership in Islamic Finance. With over 1.6 billion Muslims on the planet, it is really an important and growing market that no financial center are able to afford to disregard. Islamic law (Shariah) prohibits taking or giving interest (Riba) the most important feature of Islamic banking. Due to this, other approaches for example profit-discussing and fee-based financing allow us to conform Shariah laws and regulations.
These special modes of financing emerged in retail, private and commercial banking for debt and capital markets, insurance, asset management, structured finance, project finance, derivatives, along with other areas. To capture this chance, it is crucial that market participants in Hong Kong are very well-trained and correctly experienced around the intricacies of Islamic Finance.
Broadly, Shariah investing prohibits taking or having to pay interest (Riba), speculative transactions or gambling (Masir), selling something with uncertain car loan terms or that you simply don’ own (Gharar), and investments in companies which have non-Islamic behaviors (for example companies getting alcohol, drugs, gambling, weapons, and so forth). Financial services companies that need to find in to the Islamic Finance market must make sure their staff people are trained around the fundamentals of:
Bai’ al-inah- purchase and purchase-back
Bai Ad-Dayn – purchase of debt
Ijarah – leasing
Istisna – contract of exchange with deferred delivery
Mudarabah – profit discussing
Musharaka – equity participation
Murabaha – cost plus
Sukuk – Shariah compliant bonds
Takaful – Islamic insurance
Jualah – service charges
Kafalah – guarantee
Qard – loans
Wakala – Agency
Additionally to developing domestic business, Hong Kong is visible like a gateway to China for Islamic Finance. Using the many petrodollars and Chinese sovereign funds searching for investments, the results in a unique chance for Hong Kong (the fund-raising platform for Chinese companies outdoors from the China).
Hong Kong has developed lending options which are Shariah compliant and it has several tracker funds and exchangeable sukuks in the markets. While proven structures continuously achieve a the Islamic Finance market, you will find signs that a few of the modern-day originators and investors are searching for additional value-added and innovative structures. Like a center for financial innovation in Asia, Hong Kong is well-positioned to capture this chance.
However, my analysis implies that Hong Kong’s banks and financial services firms don’t have a persons capital, skills or understanding to really participate in the Islamic Finance market. Banks should therefore purchase broad-based worker training initiatives to ensure that their staff understands the marketplace chance and potential methods to Islamic Finance. This only works if top leaders honestly think in the opportunity of Shariah compliant products and embrace effective training in an effort to drive change.