gif Islamic Finance
Mohammed Naim Mohd Azad Din, Vice President, Asset Management , Sidra Capital, Saudi Arabia
What is the most lucrative sector for Islamic investment? All sectors could be lucrative sectors to invest in (ex non-Shariah compli- ant sectors). It depends on many such factors as the state of the overall economy, the opportunity to leverage at attractive spread, the entry price and others. Importantly, it also depends on the investors’ astuteness in sniffing opportunities. In the Middle East, however, real estate invest- ments seem to be in the lead of the lucrative league table compared to other sectors. Nevertheless, this opinion may not be applicable to certain countries/ emirates which had suffered from real-estate burst notably Dubai. As for others, the growth in the sector is significantly sup- pressed by the Arab Spring i.e. political stability.
To put my opinion into context, I see strong appetite to explore other types of alternative investments besides real-estate as opposed to the traditional securities investments of equities and bonds. Alternative in- vestments seems to provide additional layer of comfort to investors when it comes to ownership as most of the investments will be asset-backed and the returns are much better predicted (sustainable) with lesser de- gree of volatility. Further, they could also become a suitable substitute to bond-like investment with steady payment of coupon based on income- yielding strategies. Other types of alternative investments would include private equity, leasing and structured trade finance (commodities).
Which sector of the Islamic finance do you personally feel will be suc- cessful in the upcoming years? What is happening in the global economy currently is forcing internation- al corporations to expand beyond borders more rampantly for new mar- kets. Many of them who are qualified technical partners would be even more receptive to investment opportunities in the Middle East though there has been such a trend over the last decade. The pattern augurs well to the Middle East long term infrastructure developments. Some of the sectors which are likely to strive include the education, healthcare, power generation and land infrastructure i.e. highways. However, they remain government-led initiatives instead of private sector-led initiatives. In Saudi Arabia, in 2012, a sovereign sukuk was issued by the General Authority of Civil Aviation (GACA) and followed by the Saudi Electric Com- pany (SEC), not long after. These issuances provide significant lifeline to the sukuk sector, which saw a huge dip in the number of sukuk issuance in recent year. Whether this will be sustainable, I believe it will as long as they remain budget positive supported by sustainably high prices of oil.
As an advocator of alternative investments, I remain optimistic that there is a huge untapped opportunity in the Alternative Islamic Invest- ment Fund space in the region. This is in addition to real estate. Though some similar opportunities are currently available conventionally, very little of them are being provided in Islamic finance and those available Islamic finance are undoubtedly over-subscribed. Hence, continuing to develop Shariah compliant alternative investment funds would remain relevant as long as the gap remains unfilled by such similar offerings in the market.
What do you personally feel are the major challenges faced by Islamic investors? One of the main challenges that I could think of is the difficulty to source suitable opportunities that match the investors’ investment profile. As you know, they do not often seek growth as some prefer capital protec- tion, capital preservation and balance-growth. Further, it is also some- times not easy to source Shariah compliant opportunities as we received proposals from all over the world. Screening these investments are fre- quently resource consuming. Thirdly, given the current market, sourcing leverage is also a challenge, more so for Shariah compliant leverage. Notwithstanding these, these challenges are addressable nonetheless.
ternational hub for Islamic finance and banking, including lucrative investments currently in the pipeline. Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants, says: “Australia is well be- hind other advanced economies in setting up the right tax environ- ment to attract some of the trillion-dollar-plus worldwide market for Islamic investment.” The future looks promising for Islamic invest- ments worldwide, as many global investors are seeing the benefits of investing in a Shariah-compliant manner, in comparison to the conventional investments which have often left investors heavily in debt. If you are considering making an investment in any of the fi- nancial hubs listed in this two-part series, it is definitely worthwhile investigating your chosen sector thoroughly, in order to guarantee a profitable investment.
Investments in Key Areas of Sukuk and Takaful for 2012 The lucrative Sukuk Islamic bonds and Takaful sector is ripe for a variety of investments in 2012. The emergence of a new ‘green’ scheme for Islamic bonds and investments in this area has recently emerged as a new investment model. “There are a significant and growing number of projects, for example in renewable energy in the Middle East, that are ideally suited to Sukuk investors,” said Aaron Bielenberg of the Clean Energy Business Council (CEBC), the PV Magazine reported on Tuesday, March 6. “This group will help inves- tors to more easily identify Shariah-compliant, clean energy invest- ment opportunities.”
The new group was formed by Climate Bonds Initiative, the Clean Energy Business Council (CEBC) of the Middle East and North Af- rica, and the Gulf Bond and Sukuk Association. The group aims to seed new ideas around Shariah-compliant green energy projects, in order to open up opportunities for Islamic financial investments. Its aims to introduce those opportunities to potential investors, includ- ing discussing projects which would include investments in climate change and photovoltaic projects. By working with the CEBC, which represents the private sector of the clean energy industry across the Middle East, the initiative aims to channel diverse market expertise in order to develop best practices, and to promote the issuance of Islamic Sukuk bonds, an investment market which is seeing increas- ing growth.
“We’re looking closely at a couple of prospective bond issuances,” says initiative chairman and co-founder Sean Kidney. “Green Sukuk is ideally suited for the financing of many of these investments,” says Nick Silver of the Climate Bonds Initiative. Nasser Saidi, chairman of the CEBC, agrees.”If you look at current projects across the region, and if a fraction of those were to be financed with green Sukuks, then you’re talking about USD10 to USD15 billion,” he said.”The time is right for a green Sukuk.”
The growing Sukuk market reached USD111.9 billion during the eight years up to 2008 – a staggering profit - according to the International Islamic Financial Market. Bloomberg has released a report including data that shows global sales of Sukuk to have reached USD6.6 bil- lion in 2012, an enormous increase from USD2 billion a year earlier. From a start almost three decades ago, the Islamic banking industry has seen substantial growth as it attracts the attention of investors and bankers across the world. A long list of international institutions
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18 Global Islamic Finance May 2012 2.10 2.42 2.78 3,19 3.67 Global Takaful Market $bn 6.42 5.59 4.22 4.86 7.39
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