Size of lender expected to boost Islamic finance market, help lure sukuk sales
A new Islamic investment bank to open next year in Bahrain is planning to raise $100 billion in its first 10 years to fund projects in Muslim countries and challenge the top underwriters in the sukuk market.
The lender, scheduled to begin operations in January, will start with $10bn of capital and help provide financing for “profitable” ventures among the 57 member nations of the Organization of the Islamic Conference, Abdulmohsen Linjawi, general manager of the Business Owners Union, an OIC unit, said on August 15.
The lack of institutions within the $1 trillion Islamic finance industry capable of handling large deals that conform to the religion’s ban on interest spurred Malaysia to announce last month it will issue a license to Asia’s first Sharia-compliant “mega” bank.
Offerings of Islamic bonds, known as sukuk, more than doubled this year to $16.8bn, and the debt has returned 6.7 percent in 2011, compared with 6.4 percent on other developing-country bonds, according to JPMorgan Chase & Co’s Global Emerging Markets Bond index.
“We will study projects to see how feasible they are, and invest only in commercial projects that we think will be successful,” Linjawi, who is also assistant general manager at the Islamic Chamber of Commerce and Industry, another OIC unit, said in a phone interview from Jeddah, Saudi Arabia. “This will be the biggest bank in the OIC.”
Demand for financial services that comply with Shariah law is increasing as a 33 percent jump in the price of crude oil over the past five years and growth in Asian economies boosts the incomes of the world’s 1.6 billion Muslims. Members of the OIC, the second-largest grouping of countries after the United Nations, include Malaysia, Indonesia, Qatar and Saudi Arabia.
Malaysia announced a 10-year, $444bn development plan in September, while Saudi Arabia said in 2010 it is spending $384bn on power plants and housing over the next five years.
Qatar plans to invest $88bn as it prepares to host the soccer World Cup in 2022, Qatar National Bank SAQ Assistant General Manager Enrico Grino, who oversees project finance, said on May 16.
“If you look at the size of the Islamic banks, you’ll see that they’re quite small, and they aren’t able to compete with traditional banks when it comes to investment,” Moinuddin Malim, chief executive officer at Dubai-based Mashreq Al Islami, said in a telephone interview in the emirate. “Most Islamic banks are limited to their jurisdictions and miss out on investment opportunities.”
The new Islamic lender, to be based in Bahrain’s capital Manama, will help arrange sukuk sales and lure business from the biggest underwriters in the region, HSBC Holdings and Standard Chartered, said Adnan Ahmed Yousif, chief executive officer of Albaraka Banking Group BSC, Bahrain’s largest Islamic bank.
“This will boost Islamic banking,” Yousif said in a phone interview from Damascus, Syria yesterday. “The banks right now don’t have the sort of money for big projects or large sukuk offerings.”
Negotiations to create the new bank have been going on for about five years, so “I’ll believe it when I see it,” Mashreq Al Islami’s Malim said.
The Islamic Chamber of Commerce and Business Owners Union are working “very hard” to meet the January deadline, said general manager Linjawi. “God willing it will happen,” he said.
The new bank will be headed by Sheikh Saleh Abdullah Kamel, president of the Islamic Chamber of Commerce and chairman of Albaraka Banking, Linjawi said.
“This will improve the Islamic finance industry,” he said. “We need a bank like this.”For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
The problem with many investment banks, whether conventional or shariah-compliant banking platforms is that they concentrate only on the fund-raising/placement-distribution side (i.e. supply side of financing). The real challenge however is identifying the specific projects (the demand side) that makes economic sense and have long-term viability and sustainability. Most of the banks, conventional or shariah-compliant, are still trodding the well-beaten path of government-sponsored projects financing, the real estate market development, and trading activities. There is limited local capability and mindset discipline in project hunting, project assessment, and project implementation monitoring on the part of banks. Exactly what would a mega-size shariah-compliant bank or a conventional bank contribute specially besides the funding? Any value-added project advisory, project enhancement, project guidance, etc. That is not really clear until now.
Congratulation on new initiatives.GOD Almighty give strength and courage to all those who are working to eliminate Riba and promote true islamic banking in the entire world.