9/11 boost to Islamic finance

Repatriation from the West of billions of dollars of private wealth to the oil-rich Gulf Arab states after the 11 September attacks has helped promote the Islamic finance industry, a researcher has said.

9/11 made Muslims aware of Sharia-based finance
9/11 made Muslims aware of Sharia-based finance

But despite increasing concerns of Muslim investors, more than 85% of that estimated 1.5-trillion-dollar wealth still remains in the United States, Europe and Japan, said Rushdi Siddique, Global Director of Dow Jones Islamic Indexes. 


The estimates are based on a study conducted by a British asset management firm two years ago and do not take into account recent large increases in oil revenues, Siddique said on Tuesday.


“After 9/11 … probably less than $20 billion” of Gulf investments were repatriated, coupled by a low rate of capital flight from the six-nation alliance of the Gulf Cooperation Council (GCC), he said.


Upward trend


“There was some liquidation of (Gulf) investments, real estate, and equity and others,” in the United States after 9/11, but some of those funds found its way to Europe, Siddique said.


Some of the money went into
real estate of GCC states

Some of the money went into the stock markets and real estate of the GCC states which explains the upward trend in these sectors over the past three years, he said.


Siddique was speaking on the sidelines of a three-day International Islamic Finance Forum which opened in Istanbul on Monday. Some 60 speakers from 20 countries will address various issues related to Islamic finance.


Tens of billions of dollars of additional oil income entered the coffers of the GCC states due to high oil prices and output. Part of the funds has seen its way to the private sector through ambitious mega projects.


Oil production


The Gulf states have been producing about 16.5 million barrels per day, almost at full capacity.


Repatriation of funds and a rise in oil revenues have combined to raise liquidity in the Gulf markets to unprecedented levels.


High oil revenues too have brought in funds to Gulf states

High oil revenues too have
brought in funds to Gulf states

“It brought surplus of liquidity to the Arab and Islamic banks. They are doing more real estate projects,” Siddique said.


But it remains to be seen if they can continue to create more products to absorb this huge liquidity.


“I think they are doing their best because they do not want to lose the money … But time will tell if they” sustain the drive, he said.


Siddique said the events of 9/11 had made Muslims more aware of Islam and Sharia law-compliant finance.


Unofficial estimates


“They want to use their savings and investments in an Islamicly-compliant manner … It created an awareness of how this (Islamic finance) works. In economic terms it had a positive impact on the Islamic finance industry,” he said.


“They want to use their savings and investments in an Islamicly-compliant manner…”

Rushdi Siddique,
global director, Dow Jones Islamic Indexes

Although no solid figures are available, unofficial estimates put the size of the Islamic finance market at some $300 billion, with Islamic investments estimated at an equal amount.


Some speakers, however, questioned the validity of those figures and an estimated annual growth rate of 15%.


To cope with the liquidity influx, Islamic financial institutions have been searching for new investment instruments that do not breach the tenets of Islam.


They have recently introduced Islamic bonds known as Sukuk for large-scale financing and hedge funds for high-risk, high-yielding investments.


Last week, National Commercial Bank of Saudi Arabia issued a $1.6-billion Sukuk finance for Etisalat of the United Arab Emirates (UAE) which won a deal to operate a second mobile phone licence in the kingdom.

Source : AFP

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