gif Interview
transactions to meet our clients’ financ- ing needs. We combine our understanding of Shariah compliant products with UK tax structure and financing rules to offer our cli- ents and investors products that work.
How vital is capital market for the Islamic finance and banking industry? Capital markets play a critical role in de- veloping the institutional investor base for Islamic finance and with it bring access to new sources of capital to grow the industry. Islamic finance continues to be dominated by the Islamic banks and due to shortage of Shariah compliant assets for banks to invest in this is likely to continue to be the case for some time.
The real impact of Capital markets emerge when it plays its traditional role in dis-inter- mediating banks and in bringing new sourc- es of capital to the market. The success of Islamic Capital markets therefore should be measured by the success of its fund man- agement industry that provides Islamic in- vestors with suitable Shariah compliant in- vestment products that contributes to their pensions and helps their economic growth.
How do you think Islamic finance is pro- gressing in the trade finance sector? In my opinion Trade finance remains an untapped opportunity in Islamic Finance. From a product perspective, the murabaha contract is a good fit with financing trade, its short term nature (majority of contracts are less than one year) helps with the need for liquidity in the sector and the significant in- ter OIC trade can offer a captive market for developing the business. Yet Islamic trade finance accounts for less than 5% of the banking assets. I think part of the problem is lack of connectivity between the Islamic banks.
International trade Finance offers a signifi- cant opportunity to connect Islamic Banks together. Cross border trade relies on banks working together in accepting each other’s risk. The progress amongst Islamic banks has been slow because majority of the business continues to flow to conventional banks, so customer does not see the benefit of Islamic finance if his L/C ends up as a ne- gotiable paper in the conventional market. We must encourage Islamic banks to have trade finance flow between one another if we are to untap the huge opportunity in Is- lamic trade finance.
Prior to your role as Head of Capital Mar- kets you were Head of Trade Finance tell us more about your role within the trade finance sector? In its formative years BLME focused its trade and business finance activities in the UK do- mestic corporate market and my job was to
56 Global Islamic Finance May 2012
develop BLME’s trade finance offer for Sup- ply Chain financing and Asset Based Lend- ing products. We continue to offer these products to our clients and additionally we have broadened our offer to trade services that includes documentary credit for inter- national trade.
How are capital markets in the Islamic fi- nance industry progressing in 2012? I believe the financial crisis and instability in the Middle East were important tests for the Islamic Capital markets which demonstrated despite its embryonic stage it has the resil- ience and demand to help it bloom again. In some countries such as UAE and Malay- sia issuers have an equal choice in using the conventional or Islamic capital markets, which is an important signal for the maturity of the market.
Judging by the growth in the volume of sukuk issuance and the return of windows as MLAs in large ticket financing transactions such as HSBC, SCB and Deutsche Bank, I would say the progress is impressive and reminiscent of the pre-crisis days.
What do you feel the future holds for Islam- ic finance and banking? I see significant head space in the growth of Shariah compliant finance, which is unlikely to plateau within the next ten years. The key macro drivers for growth are significant surpluses in the GCC markets and growth prospects of developing economies such as
Malaysia and Turkey, not to mention the po- tential demand from Africa.
The key sectoral driver will be the ambitions of the larger Islamic banks and their plan to extend their operations beyond their lo- cal markets. Majority of income of the top Islamic banks come from their domestic market. Over the next ten years I hope to see more on the internationalisation strategies of these banks and a significant shift in in- vestment for growth in new markets.
Can you tell us more about the £11.5 mil- lion Murabahah financing deal with Bou- byan bank? I am not sure which deal this question spe- cifically refers to. We have done a number of transactions in association with Boubyan Bank, most recently was our participation in syndicated Murabaha for Boubyan Petro- chemical.
Istisna vs. Murabahah has been debated within the industry what do you feel is the better contract? Istisna is a variation of Murabaha contract that is well suited to financing construction. The parties can agree to use alternative structures for financing including forward lease and Murabaha.
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