This page contains a Flash digital edition of a book.
Islamic Finance gif

Debashis Dey, Partner, Head of Capital Markets, Middle East, Clifford Chance LLP

of opportunities available in sectors within the Malaysian Islamic investment arena. These are outlined in Figure2. With the 2012 launch of Crescent Wealth and Thomson Reuters’ new specialised index, investors will enjoy a wider range of alternatives, whether in- vesting their money on the Bursa Malaysia exchange, or trying the new specialised index, which will have more scope for fully-fledged Islamic investments.

What is the most lucrative sector for Islamic investment? The wider acceptance of Islamic investment products across the globe now means that in many markets they compete alongside conventional investment products. We’ve not seen any great loss of appetite for Is- lamic investment; however, the opportunities for investment in recent years have been less. Globally the commodities sector remains vibrant as a source of hedging and relative liquidity against what remains a largely volatile global economy.

Innovation in structures available for investment will also continue to happen as the sector grows. Last year Clifford Chance advised HSBC Bank Middle East Limited in connection with updating its US$5 billion sukuk issuance programme and a US$500,000,000 issuance under the Programme. This transaction was the very first sukuk to ever use the innovative structure of a Mudaraba and Wakala. This structure has now been replicated by many other financial institutions in the Middle East in relation to the establishment of their programmes. In addition, Clifford Chance advised Nakheel on their trade creditor sukuk, the first to exchange trade receivables for sukuk property and the first sukuk to contain a “tap” mechanism.

Which sector of the Islamic finance do you personally feel will be suc- cessful in the upcoming years? As Dubai and other emirates as well as Saudi Arabia rebound from the financial crisis the most lucrative sectors in the next 12 months are likely to be infrastructure, telecommunications, insurance, logistics and travel. In the last few months Clifford Chance has been advising a number of Middle East issuers who are returning to the market.

Outside of the Middle East we are seeing an increasing trend of South East Asian issuers to begin looking to do more international Islamic fi- nance transactions e.g. Government of Malaysia, Government of Indo- nesia. The demand for funding projects in South East Asia is also high in particular in the Indonesian market, but more work needs to be done in order to facilitate international non-sovereign transactions to be ex- ecuted.

What do you personally feel are the major challenges faced by Islamic investors? Despite the economic rebound experienced in the Middle East, the ongo- ing Eurozone debt crisis coupled with expected lower contributions from the oil countries will continue to be the biggest macro challenge, since we expect these drivers will keep growth depressed for some time. Many Islamic investments were also in what has been an underperforming and relatively illiquid real estate sector. Against this backdrop liability man- agement and restructuring of obligations within and among financial institutions and within portfolios will continue to be the major challenge faced by Islamic investors. But it is worth noting that Clifford Chance are at the forefront of helping Islamic investors adapt to these challenges by continuing to innovate across traditional asset classes in developing new structures.

In addition, many companies will wish to tap into the new opportuni- ties presented to them, which have made 2012 a positive year for Islamic financial investments. The market has progressed consider- ably since 2011; a year which also saw many achievements in the investment sector which gave rise to similar opportunities.These opportunities have been highly visible in Asia and the Middle East. Europe has also developed the facilitation of Islamic finance and banking institutions, and Islamic financial windows within conven- tional banks, which could further help to introduce Islamic financial investments to a global platform.

Many Asian countries - noticeably India - are slowly tapping into the world of Shariah-compliant investments. India recently launched its first ever Shariah-compliant Islamic financial institution, in the city of Kerala. The Al-Baraka came into action after the Kerala High Court dismissed a couple of writ petitions challenging the establishment of Islamic financial institutions within India’s secular system.

Another key investment exhibited was the collaboration of the 2011 Bombay Stock Exchange and TASIS on the launch of a Shariah- compliant index, in order to promote Islamic finance in India. This is the first Shariah index created in India, which utilised the strict guidelines and local expertise of a domestic, India-based Shariah advisory board. The BSE TASIS Shariah 50 index lists the 50 larg- est and most liquid Shariah-compliant stocks within the BSE 500. TASIS employs a strict, proprietary screening process, utilising its knowledge of and local access to listed Indian companies in order to ensure that all stocks included within the index are strictly compli- ant with Islamic Shariah law. TASIS has adopted financial screening norms which are more conservative than those used by its peers, making the product ideal for Islamic investors seeking investments which are sure to adhere to the strict, conservative principles of full Shariah compliance.

Madhu Kannan, managing director and chief executive of BSE, says: “The introduction of the BSE TASIS Shariah 50 Index will give Is- lamic and other socially responsible investors another means to ac- cess the Indian market, and will help attract pools of capital to India from the Gulf, Europe, and Southeast Asia. This index will create increased awareness on financial investments amongst the general population, and will help to enhance financial inclusion. The index will also build a base for licensing for the construction of Shariah- compliant financial products, including mutual funds, ETFs, and structured investment products.” (Z. Hassen).

Australia is another country whose provision of Shariah-compliant investment opportunities is rapidly emerging. Australia is quickly launching into the Shariah-compliant investment arena by making the necessary changes in the law to accommodate the sector. Dick Warburton, chairman of the Board of Taxation appointed by the Australian federal government, has published a paper on the tax treatment of Islamic finance, banking and insurance products with- in the country. His Australian Financial Centre Forum report says: “The greatest opportunity for Australia, in terms of accessing off- shore capital pools to finance domestic investment needs as com- petitively as possible, would appear to be in the area of developing Shariah-compliant wholesale investment products.” The new index will help Australia to build its equity portfolio for Islamic investment. It is set to further help the country to excel and to become an in-

2012 May Global Islamic Finance 17

Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88