Islamic finance has 'key role' to play – report

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ISLAMIC FINANCE: Report says Islamic finance has key role to play in helping to restore market confidence. (Getty Images)

US financial services provider State Street Corporation says in a new report that Islamic finance has a key role to play in restoring confidence in the financial markets.

Its 'Vision Report on Islamic Finance' - the seventh in its series of Vision reports - cites a market that has been growing by as much as 20 percent a year since 2003. The report estimates that total assets under management at Islamic financial institutions now exceed $600 billion.

Rod Ringrow, senior vice president of State Street based in Doha said: "Against a backdrop of a challenging global environment, Islamic finance is emerging as a competitive form of intermediation in the international financial system and it has a key role to play in restoring confidence in the markets.

''Opening the door to additional forms of investing, particularly ones that emphasise the sharing of risk and reward, will certainly help to facilitate this goal."

State Street says the Islamic finance industry has become an alternative option for investors and a competitive form of financing for commercial enterprises. It is also allowing for the further diversification of risk and is contributing to an efficient international allocation of resources across borders.

While the selection of products at large Islamic financial institutions remains relatively narrow, some newly created Shariah-compliant instruments are beginning to rival those of conventional banks.

The principles of Shariah, the moral and legal code that governs the industry's development, impacts the underlying structure of its products and services, and ultimately serves as one its biggest selling points to investors.

Ringrow added, "To date, the global financial crisis has had a limited direct effect on Islamic finance as investors seek out asset classes and markets they hope will provide stability. The tenets of Islamic finance - lower leverage, transparency and no speculation - make it an attractive investment option in any market environment, especially today's.

''In fact, demand for Islamic finance products and services in the global market may be exceeding current availability.

''Islamic finance will attract an increasingly global group of investors in the years ahead, and we believe the industry as a whole will respond with new products that will offer greater variety and sophistication for a host of complex, cross-border transactions," he noted.

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