Islamic finance sector too reliant on real estate - report

New banking study says industry needs to diversify after seeing 'significant shrinkage'.
Islamic finance sector too reliant on real estate - report
PROPERTY PROBLEM: The Islamic finance industry is too reliant on the struggling real estate sector, a new report claims. (Getty Images)
By Andy Sambidge
Mon 13 Jul 2009 12:16 PM

Islamic investment banks are too dependent upon real estate for their investment activity and they need to diversify into other asset classes, according to a report published on Monday.

Islamic Investment Banking 2009, published by Yasaar Media and co-published by Unicorn Investment Bank and Doha Islamic, says the

Islamic finance industry has seen "significant shrinkage since the onset of the global financial crisis" as the values of investments and deposits have declined in line with global markets.

One of the biggest declines in the crisis has been the value of real estate assets which have tumbled across the globe, the report added.

The over-reliance of many Islamic investment banks on real estate means that the underlying values of their portfolios have declined too, the report said.

The study argues that a greater diversification into other asset classes would have helped diminish the impact of some of these losses and enabled banks to weather the storm in better shape.

Areas that are particularly ripe for Islamic investment activity include both Islamic private equity and venture capital, the report states.

Paul McNamara, author of the report, said: "The fact is that not enough Islamic investment banks have delved into a diverse range of asset classes and as a result the industry is not as robust as it could be.

"While not every bank will want to be involved in every area of investment, a healthier spread of asset classes and diversification away from real estate can only serve to produce an industry that is less prone to market dips and more prone to healthy and sustained profitability."

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