News on Securitization: Islamic Finance Growing
October 6, 2013:
With the backdrop of conventional financing methods going bust and investors burning their hands, global markets are seemingly wanting to get a taste of Islamic finance. Further, ever since the sub-prime crisis of 2007, time and again there have been discussion on need for finding alternative modes of financing and Islamic finance has been ever increasingly accepted as the next best alternative known.
The need of funds for infrastructural development are one of the factors leading countries to scout for funds and are now wanting to attract Middle East investors by adopting Shariah compliant products. From business perspective as well Islamic structures are gaining popularity because ownership structures offered in Shariah compliant products are less risky and more ethical following the proponents of Islam.
In Africa, several countries have made sukuk issuances in 2012 for infrastructural development. The need for development in the continent demands funds and African nations are looking to tap investors from Middle East . Being in the embryonic state of developing capital markets, the intent of tapping funds through Shariah compliant products may establish the Islamic Finance industry in the continent.
African governments are beginning to address the legal obstacles to Islamic finance by putting in place the necessary regulatory measures. However, having appropriate regulations in place alone is not sufficient. For any African country looking to establish itself as an Islamic finance hub of the future, that country must overcome a number of other challenges to create an environment conducive for Islamic finance to take root, including investing in education, capital markets infrastructure and political stability.
India too has opened gates for Islamic Finance with the recent decision of Reserve Bank of India to allow Kerala based non-banking financial company to develop Shariah compliant business. With a large Muslim population, India embracing Islamic finance was a no brainer.
On the other hand, Scotland is positioning itself to be potential hub for Islamic Finance. Scotland is becoming the niche market for Shariah compliant products with an estimated growth of 15-20% annually. Acceptance of the Shariah compliant products is well established in Scotland and its popularity is increasing particularly in the limited access to conventional sources of funding in the market. With a strong fundamental to Islamic Finance in Scotland and growing demand of Islamic finance products amongst businesses and consumers in Scotland, the country may indeed be the centre for Islamic finance activity.
With U.K hosting the World Islamic Economic Forum, setting up an Islamic Finance Task Force and eyeing to become the Western Capital of Islamic Finance, Islamic Finance is increasing gaining recognition and is here to become the next big thing in the capital markets.
[ 1 : According to a Reuters report on Oct 2, 2013, Nigeria's Osun State issued a 10 billion naira ($62 mn) sukuk yielding 14.75 percent. It is the first Islamic bond from a major economy in sub-Saharan Africa. ]
Reported by Nidhi Bothra