The role of Islamic finance in China's new Silk Road

The UAE is one country that is seeking to bring together Islamic finance and the Belt & Road Initiative

Mustafa Adil, OpinionIndustry Expert
Mustafa Adil is the Head of Islamic Finance under Emerging Businesses for Thomson Reuters. He is responsible for leading various content propositions including Islamic finance, green economy and fintech. Prior to joining Thomson Reuters, Mustafa was a leading consultant with Ernst & Young. He is a qualified Chartered Accountant from the Institute of Chartered Accountants of England & Wales and holds a Bachelors degree in Mathematics from Imperial College in London.

August 6, 2018

China's ambitious plan to recreate its ancient land and maritime silk roads for the modern era has created an unprecedented opportunity for Islamic finance to build on its already stellar growth.

The Belt & Road Initiative – originally announced by Chinese President Xi Jinping in 2013 – is a trillion dollar project to build an interconnected system of roads, railways, bridges, ports, oil and gas facilities, power supply networks and other infrastructure designed to boost Chinese trade with Europe, Southeast Asia, Africa and points in between.

The Silk Road Economic Belt will be developed as a land trading route joining China with Europe via Central Asia and Russia, while the 21st Century Maritime Silk Road will establish a network of modern ports linking China and Southeast Asia with Europe and Africa via the South China Sea, the Indian Ocean and the Red Sea.

The Belt & Road Initiative is a multinational rather than purely Chinese project
The Belt & Road Initiative is more than a purely Chinese project, however. It has rapidly evolved into a multilateral venture with the full participation of the more than 60 nations so far signed up to it, and many of these are Muslim-majority countries.

China has created two institutions to finance the extensive constellation of Silk Road projects: the Chinese state-owned Silk Road Fund and the multinational Asian Infrastructure Investment Bank.

The AIIB states on its website that its mission is “to improve social and economic outcomes in Asia and beyond” and that its mode of operation is “Lean, Clean and Green”. This sits well with the social and environmental goals of Islamic finance, and as the bank seeks the financing it needs to bring projects to fruition, it is likely that Islamic financial instruments such as sukuk – or Islamic bonds – will be used to fund some of the projects.

Dubai seeking to become world’s leading Islamic finance hub for Belt & Road initiative
The United Arab Emirates is one country that is seeking to bring together Islamic finance and the Belt & Road Initiative. Dubai-based Hamdan Bin Mohammed Smart University has organised a roundtable conference on Islamic finance and the Belt & Road – its third such conference – to be held this year in China, with the support of the Dubai Islamic Economy Development Centre, the UAE Ministry of Economy and the China Islamic Finance Club, among others.

Discussions will explore “strategies to leverage the benefits of Islamic finance” in line with the Belt & Road Initiative. Dubai aims to become the world’s leading Islamic finance hub for the Belt & Road.

Dubai Islamic Economy Development Centre CEO Abdullah Al Awar in a speech last year said: “The huge projects offered by the Silk Road initiative offer incredible opportunities to boost global economy, develop the infrastructure of the emerging countries, increase production and trade, and offer jobs and opportunities that will eventually reduce unemployment, poverty, and stagnation while raising the purchase power of people.”

Participation of Muslim population in China
Aside from the Muslim-majority countries participating in the project, there is also a substantial Muslim population in China itself. Muslims in China are also keen on bringing in Islamic finance techniques to boost their own regions, primarily in the west of the country, and to help build bridges between China and other Muslim countries.

The first Chinese nongovernmental institution established to promote Islamic financial cooperation between China and Muslim countries was the Islamic Finance Society, founded in 2014 by a Chinese Muslim who had studied Islamic finance in Malaysia. This was followed by the China Islamic Finance Club, which was registered in Hong Kong in 2015.

With the Belt & Road Initiative estimated to require an annual $2 trillion to $3 trillion in new funding for decades to come, it is hard to overestimate the potential for Islamic finance that the scheme presents.

If that full potential is to be realised, it is essential that the Islamic finance industry does all it can to promote its benefits both within its own Muslim-majority borders and within China and non-Muslim countries.

The Global Islamic Economy Summit (GIES) is the world’s largest and most comprehensive forum dedicated to the Islamic economy. It is organised by the Dubai Chamber of Commerce and Industry and Dubai Islamic Economy Development Centre (DIEDC) and strategically supported by Thomson Reuters.

Any opinions expressed here are the author’s own.

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