Mar 21 2011 |
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Prospects bright for industry in Middle East
By By MUSHTAK PARKER While protestors are raging in several Middle Eastern capitals demanding political and economic reforms, regime changes and an end to corruption, there has been some speculation on the impact on the Islamic finance sector in key markets such as Bahrain.Already investors are reportedly demanding higher returns for sukuk and average yields for sukuk originated in the Gulf Cooperation Council ( GCC ) countries have risen by between 40 to 50 basis points.
However, the reality remains that sukuk issuances remain heavily oversubscribed. For instance, Bahrain, which has seen almost regular daily demonstrations, continues to attract investors for its regular short-term sukuk Al-Salam and Sukuk Al-Ijara issuances.
Similarly, the monthly issue of the short-term Sukuk Al-Ijara earlier in February was oversubscribed by 680 percent, with subscriptions worth BD68 million received for the BD10 million issue, which carries a maturity of 182 days. The expected return on the issue, which began on Feb. 17 and matures on Aug. 18, is 0.92 percent.
But seasoned Islamic finance officials and market players, who wish to remain anonymous, see exciting new medium-term opportunities in countries that have been politically flipped such as Egypt and Tunisia, and possibly Libya.
Egypt under the regime of ousted President Hosni Mubarak was downright hostile to Islamic finance, albeit that it tolerated it up to a point to allow some flow of investment into the economy. For instance, the government allowed Dar Al-Maal Al-Islami (DMI), headed by Prince Muhammed Al-Faisal, to establish the Faisal Islamic Bank of Egypt, which since its establishment in the 1980s has been subject to a range of regulatory and management difficulties. Similarly, the government gave Saleh Kamel a license to establish the Saudi Egyptian Finance House, which effectively was the takeover of the troubled Pyramid Bank.
But institutionally at the level of some of the state-owned institutions especially the Ministry of Finance, the Central Bank of Egypt and the government banks, there was deep-seated antagonism against Islamic finance, on the spurious grounds that it is a child of Islamic radicalism and in the Egyptian context of the Ikhwan Al-Muslimoon (the Muslim Brotherhood).
A liberated and democratic Egypt, the Islamic finance officials and market players stress, would remove the political bias against Islamic banking and pave the way for the entry of new institutions and investment flows especially in a country which needs such inflows to finance infrastructure and development. At the same time, demand for Islamic financial products offered by well-regulated banks is expected to be high in a country with a population in excess of 80 million people.
However, any inroads of Islamic finance in Egypt will depend on the progress and quality of the political reform process and the transformation to a democratic dispensation. Officials see good potential for sukuk origination, Islamic corporate finance and consumer finance products in Egypt.
The irony of Egypt is that many of the pioneers of the contemporary Islamic finance movement were Egyptian including the late Zaki Badawi, Professor Mohammed Abu Saud, Ahmed El-Naggar and Sheikh Mohammed Khater; others such as Gamal Attiya, who were responsible for the establishment of such experimental institutions such as Lembaga Tabung Haji (the Malaysian Pilgrims Management Fund) together with Royal Professor Engku Aziz in the 1960s; the Islamic Banking Holdings System in Luxembourg in 1979; and the International Islamic Bank of Denmark in the early 1980s. But these efforts were outside Egypt for some of them were political exiles and others were simply marginalized because of the institutional resistance to anything to do with Islam or Islamic.
However, the challenge for the future democratic Egyptian government and its central bank would be to have a regulatory and legal framework in place to facilitate Islamic banking both for reasons of financial inclusion and as an alternative option to the interest-based market capitalist system which has failed Egypt for the last century or so.
In many respects, the same can be said of Tunisia which during the regime of ousted President Zeinal Abidine Ben Ali flirted with Islamic banking but had no coherent policy because of similar suspicions that it was a creation of Islamic radicals. Even before uprising in Tunisia, Best RE, the long-established Takaful (Islamic insurance) and retakaful entity, now owned by the Salama Group, has relocated its headquarters from Tunis to Labuan in Malaysia to take advantage of the political stability and generous tax incentives which the south east Asian country is offering for Islamic financial institutions.
Tunisia because of its proximity to the European Union, if it develops its Islamic finance industry in the new democracy, could become a bridge between the MENA countries and the Europe in this respect, especially with the French speaking countries both sides of the Mediterranean.
Some Islamic finance entities are also eying a post-Qaddafi Libya with its huge oil resources. One Malaysian entity has even done a feasibility to set up a presence in Tripoli to help guide the country toward developing an Islamic banking legal and regulatory framework.
Hitherto Libyan officials have been ambivalent about Islamic finance stressing they would allow it on a product by product basis taking into regard its risk characteristics instead of introducing enabling legislation for standalone Islamic banks.
© Arab News 2011
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