gif World Islamic Finance Review
Abu Dhabi
and Dubai:
Twin Towers of
Islamic Finance
Part 2:
Dubai
Having seen, in Part I, how Abu Dhabi is involved with Islamic finance and how Du- bai’s debt troubles impacted upon its neigh- bour’s Islamic finance market, it is now time to move the focus to Dubai itself. Whilst the near default on Nakheel sukuk may go down in posterity as a defining moment of Islamic finance in Dubai, there is more to that mar- ket’s history in Dubai than that one, unflat- tering moment.
A
lthough Dubai is known as the flashy next door neighbour of the richer, yet more muted Abu Dhabi, it has developed a financial sec- tor partially based upon Islamic finance, a fi- nancial system known for its emphasis upon
the principles of moderation and discipline. Is Dubai’s Islamic finance industry, however, reflective of these principles? What did the Nakheel crisis tell us of this industry? Is it an industry respected worldwide and if so, why?
By April 2008, Forbes had dubbed Dubai one of the ‘Capitals of Islamic Finance’ (Laurent 2008). At that stage, it had become, and still is, home to the world’s largest exchange for sukuk by listed value. Today the su- kuk listed on NASDAQ Dubai is worth US$16 billion. The Nakheel crisis is so far not enough to seriously threaten this dominance but we will later discuss in what ways, if any, the crisis has impacted on Dubai’s Islamic finance industry. One serious threat to this industry at the height of the credit crunch was the high rate of inflation experienced by Dubai in the last few years, but this is now declining sharply, making Dubai-based businesses more likely to enter into all types of financial transac- tions, including sharia’a-compliant ones. Below is a chart showing the inflation rate of the UAE as a whole, over the past nine years:
52 GlobalIslamic Finance June 2010
12.2 9.4 6.6
4.6
3.8
2.8 2.1 1.5
1
Year Figures from Potentia Inc. and Ministry of Economy
2.8 3.2 6.5 6.2 9.3
12.3
Inflation rate percentage
2006 2005 2004 2003 2002 2001 2000
2007 2008
2009
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