ArabianBusiness.com - Middle East Business News
Wednesday, 10 February 2010 00:01 UAE time

YOUR DIRECTORY /

 
Print Print | Email Email | Discuss this article (0 Comments)
| Share |

Sharia to dominate Gulf project finance

by Reuters on Monday, 25 June 2007

Islamic finance could soon wrest control of the $50 billion Gulf Arab project finance market, aided by government inducements and investors looking for alternatives to conventional funding, industry officials said.

Conventional financing now dominates the Gulf Arab market which accounted for almost $1 in every $3 raised for project financing last year, according to HSBC Holding.

But banks such as HSBC and Deutsche Bank are expanding their Islamic finance operations and Gulf Arab investors are setting up new Islamic banks to cope with the expected surge in demand for Islamic project finance.

Story continues below
advertisement

"There is some political pressure from governments and companies want to demonstrate they are acting in an Islamically acceptable way," Dominic Harvey, head of Middle East banking and projects at law firm Norton Rose said at a conference sponsored by the Middle East Economic Digest.

"Because it's a relatively new concept there is still a huge mismatch between demand and supply."

The size of the regional project finance market, already the largest in the world, could top $1 trillion in the next 10 years, driven by spending on infrastructure largely in Saudi Arabia and Abu Dhabi, the largest member of United Arab Emirates federation, Harvey said.

"Spending will be on oil and gas related projects, construction and general transport infrastructure," he said. "Some experts predict the market will grow 10-fold in the next 10 years and this could be conservative."

Funding that complies with Islamic principles, which can come from conventional banks such as HSBC, accounts for about 10% of the project finance market. Islam bans interest, which it equates with usury.

Funding from Islamic institutions likely accounts for less than 5% of the market, Harvey said.

Local Islamic lenders had previously been focused on retail banking and were reluctant to lend long-term funds, leaving the project finance market to conventional finance.

"Some local Islamic banks don't see [project financing] as attractive given the long tenors and low returns but they will need to meet the demands of their clients and do as governments require," said Hissam Kamal Hassan, director of Islamic finance at HSBC in Saudi Arabia.

Over the next 10 years, the majority of financing for projects could comply with Islamic law, he said.

Saudi Arabia is setting up an Islamic bank, called Inmaa, in part to cope with demands for infrastructure spending along Islamic principles.

"Most people behind projects are not saying we won't do non-Islamic, but they are saying that where possible, we should do Islamic," Hassan said.

Print Print | Email Email | Discuss this article
| Share |


READERS' COMMENTS

Disclaimer: The views expressed here by our readers are not necessarily shared by ArabianBusiness.com or its employees.

Click here to post a comment


Add your Comment
All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *
(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments


Please click post only once - your comment will not be published immediately.


MORE FROM ARABIANBUSINESS.COM

SHARE PRICE CHECK

RELATED LINKS

  1. HSBC Holdings plc»
  2. Norton Rose - UAE»

 EMAIL ALERTS

  1. HSBC Holdings plc

  2. Norton Rose - UAE

  3. Banking & Finance


Tell us your story

Best of 2009 - Special Report

Think Tank

READER COMMENTS

  1. Gulf carriers ‘generation behind’ Cathay on service 11
    09 Feb ' 10 at 11:55
    I was based in Bahrain and then Dubai for many years, and flew many times on many airlines operating between the Gulf states and Asia,...   More  »
  2. Emaar continues Burj Khalifa maintenance work 06
    09 Feb ' 10 at 13:27
    Burj Khalifa is an architectural wonder and deserves accolades only. Trivial issues are being magnified by the media to tarnish Burj...   More  »
  3. UAE launches workers' rights booklet 05
    09 Feb ' 10 at 13:58
    The 'legitimate residency' does open up an issue where workers have been effectively dumped after a contract and not flown home as...   More  »

Read all user comments >

MORE FROM ARABIANBUSINESS.COM