No. 1 / Jan. ’12 ISLAMIC FINANCE - Mediaplanetdoc.mediaplanet.com/all_projects/9499.pdf ·...

Educating the public Why education is imperative for growth

Worldwide perspectivesA spotlight on global development

Ethical ConsiderationsManaging wealth responsibly

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ISLAMIC FINANCENo. 1 / Jan. ’12

James Caan on why he thinks Islamic Finance could have prevented the global fi nancial crisis

TRANSFORMING THE GLOBAL MARKET

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Globally, the de-mand for Islam-ic fi nance is clear. The market for IFS rose by 10 per cent to reach US $1,041 billion by

the end of 2009, taking global assets above the US$1,000 billion thresh-old for the fi rst time: a respectable outcome in the context of the diffi -cult economic environment.

Banks, Sukuk listings and man-agement of funds are buttressed by the UK’s uniquely strong infra-structure of professional support for Islamic fi nance transactions. This consists of more than 20 ma-jor law fi rms and many profession-al service organisations including the Big Four accounting practices. All of these have established teams providing specialist Islamic fi nance services covering tax, listings, transactions, regulatory compli-ance, management, operations and IT systems. This extent of expertise has yet to be seriously rivalled by any other Western fi nancial centre.

Sukuks recovered strongly

1The Sukuk (Islamic notes that represent an alternative

to conventional bonds) market re-covered strongly in 2010 with re-cord issuance of US$50billion. Whilst there have been defaults, the impact on the broader market has not been as extensive as was feared and quality issuers of Sukuk continue to attract de-mand from investors.

Indeed, the London Stock Ex-change has proven to be an at-tractive draw for Sukuk issuance. In the first quarter of 2011, the number of Sukuk listing at the LSE totalled 31 with an aggregate value of US$19billion.

UK leading the wayBank revenues also picked up in 2010. The 22 banks in

the UK offering Islamic finance products now exceed that of any other Western country. 2010 also saw the global Islamic fund man-agement industry increase by 7.6 per cent to US$58 billion, bucking a relatively flat growth trend of previous years.

As Islamic finance expands and the range of products contin-ues to broaden, there is a grow-ing global demand for education and skills. UK institutions are

CHALLENGES

Excellence in Islamic fi nance

Islamic fi nance is growing as a source of fi nance for both Islamic and other investors around the world. The UK — especially London, is the leading Western centre for Islamic Financial Services (IFS).

‘It would help if there were a global Islamic bank the size of something like HSBC, because that would set the standard for others’

Samer HijaziFinancial Services Audit Director, KPMG London

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today at the forefront of provid-ing qualifications for the glob-al industry. Courses in Islamic finance are now offered by over thirty professional institutions; from school level through voca-tional and career-based qualifi-cations as well as undergraduate and postgraduate degrees.

Great promiseWith all these factors in place, the potential for

growth in UK-based IFS is im-measurable. The UK Financial Services sector represents a springboard for global growth and the partner of choice in the delivery of Islamic finance excel-lence. At the UK Islamic Finance Secretariat, a part of TheCityUK, our goal is to continue with the development of strong partner-ships with other global Islamic finance centres and to support the favourable environment for investment opportunities in Is-lamic finance.

For more information, please visit www.thecityuk.com

Keith PhillipsCommercial Director, TheCityUK and Member of the Board of the UK Islamic Finance Secretariat (UKIFS)

‘The 22 banks in the UK offering Islamic fi nance products now exceed that of any other Western country’

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Contacts

Nadim Khan Global Head of Islamic Finance, Dubai +971 4 428 6305 [email protected]

Adil Hussain Finance, Riyadh +966 1 463 2374 [email protected]

Hammad Akhtar Corporate, London +44 20 7466 2573 [email protected]

Simon Price Real estate, London +44 20 7466 2181 [email protected]

Herbert Smith LLP is a leading international full-service legal practice with

over 1,500 lawyers and offices across Europe, the Middle East and Asia.

We are the firm clients turn to with their most complex and critical work.

With our Global Islamic Finance team, we have Islamic finance expertise

throughout the Herbert Smith network including in Dubai, Abu Dhabi,

Hong Kong, Jeddah, London, Moscow, Paris, Riyadh and Singapore offices.

Our Islamic finance specialists regularly work closely with banks, sponsors,

government entities and corporates on Islamic financing transactions and

also regularly advise on the structuring of new Islamic products.

Our Islamic finance experts recently advised on several “first of their kind”

Islamic financing transactions including: the multi-sourced receivables based

financing of the Salik toll road system in Dubai, which included a novel Islamic

tranche; and the structuring, within the UK Alternative Finance Investment

Rules, of a Shari’ah compliant mezzanine facility for the re-financing for

5 Canada Square, Canary Wharf, London integrated within a senior, junior

and mezzanine financing structure.

Islamic finance - how can we help you?

Project Finance Team of the Year Project Finance Deal of the Year (Shuweihat 3 IPP) IFLR Middle East Awards 2011

European Deal of the Year (ITT Sukuk) Qatar Deal of the Year (QIB Sukuk) Islamic Finance News Awards 2010


The growth of Islamic finance in the UK has meant that there is an increased and urgent need to provide training courses and education for participants in the industry. This is to ensure that students and financial ad-visers fully understand Sukuks (bonds), Takaful (insurance), Mu-daraba and Musharaka (types of partnership) and Murabaha (cost plus sale).

London leading the way“There is now an increasing number of programmes from short training courses and con-ferences, to degree and post de-gree programmes, and also pro-

fessional qualifications,” says Ruth Martin, Managing Director, Chartered Institute for Securi-ties & Investment (CISI). “There is no doubt, however, that the combination of the high reputa-tion of the British qualifications system, together with London’s role in Islamic finance puts Lon-don in a strong position to take a lead in this.”

Gaining qualificationsThe Chartered Institute of Man-agement Accountants (CIMA) now offers two levels of profes-sional qualification: a diploma, essentially a broad introduction to the subject, and an advanced diploma, for those who actual-ly want to practise in the mar-ket. “Demand for the qualifica-tions is coming from all over the world,” says John Willsdon, who is CIMA’s Product Manager for Islamic finance qualifications, having been recruited in 2006 to oversee the new courses. “There is a general agreement that not enough people have a proper un-derstanding of the intricacies of Islamic finance yet.”

The diploma offers four mod-ules — Islamic Commercial Law, Islamic Banking and Takaful,

Islamic Capital Markets (includ-ing Sukuks) and Accounting for Islamic Financial Institutions. Available since July 2011, over 300 people have so far enrolled on CIMA’s new portfolio of Is-lamic Finance qualifications tak-ing the total number enrolled worldwide to over 1000.

Recognised standardsQualifi cations in Islamic fi nance arose from the request of a vari-ety of fi nancial institutions that were looking for a globally recog-nisable benchmark qualifi cation. Being a global brand, CIMA’s qual-ifi cations are recognised world-wide. “While CIMA have three main markets: Malaysia, the Gulf and the UK, we have students in over 66 countries” says Willsdon. “These qualifi cations are now rec-ognised worldwide.”

Ruth MartinManaging Director, Chartered Institute for Securities & Investment (CISI)

EDUCATION IS THE KEY TO ISLAMIC FINANCE

■ Question: How is it possible to become an expert in Islamic fi nance?

■ Answer: Good training is crucial and London now provides some of the best qualifi cations in the world.

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CIMA Certificates in Islamic Finance

CIMA Diploma in Islamic Finance

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CIMA Qualifications in

Islamic FinanceLearn today, lead tomorrow

Take advantage of the skills gap; choose from a range of Islamic

finance qualifications to suit your needs.‘The CIMA Diploma in Islamic Finance opens

doors to a whole new set of businesses.’Ganesh Prabhu

Head of Finance,

Clifford Chance (Singapore)

VIRGINIA BLACKBURN

[email protected]

John WillsdonProduct Manager for Islamic fi nance qualifi cations, Chartered institute of Management Accountants (CIMA)

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The Islamic fi nance industry has existed in the UK for the best part of 30 years, but it is only more recently that it has been making its way into the mainstream.

“Initially, Islamic fi nance start-ed as a liquidity management tool for Gulf Islamic banks,” says Rich-ard Thomas OBE, CEO at Gatehouse Bank and Chairman of UK Islam-ic Finance Secretariat (UKIFS). “But we now have fi ve standalone Islamic banks in the UK with a domestic and international presence and action in every sector from trade fi nance to domestic property investment.

“The industry has developed a capital markets capacity and domes-tic sustainability. It’s continuing in a strong growth phase, attracting new inward investment and capital in-to London. Birmingham is also be-coming a regional centre, with the

Islamic Bank of Britain being estab-lished there.”

One of the key features that has made London suitable as a centre for Islamic fi nance is that English law is most suitable for acting as an intermediary in Islamic contracts, which has in turn benefi tted the legal profession, with British fi rms establishing a presence in Dubai. “Islamic finance has developed from a niche to a sustainable sec-tor across the globe,” says Thomas. “There has been a major increase in scope and scale especially in the GCC, Malaysia and Brunei, but al-so in Africa, central Asia, the Unit-ed States and Canada. As the scope has extended, London is an attrac-tive destination as an intermediary, for the City of London has a cluster of skills and services including the law and accounting.”

As a system that focuses on hard assets and tangible business, Thom-as believes that in the wake of the credit crunch, Islamic fi nance is more important than ever. “The countries that have been spared the crisis are now wealthier than ever,” he says. “Islamic fi nance is a delev-eraged model and the global econ-omy is going through a period of deleveraging. It is now capable of dealing with world class levels of business and can support the devel-opment of SME businesses.”

Taking to the world stage

VIRGINIA BLACKBURN

[email protected]

■ Question: How has Islamic fi nance developed in the West?

■ Answer: It is now a mainstream area which is fl ourishing in the wake of the credit crunch and providing valuable alternative sources of fi nance.

NEW DEVELOPMENTS

EDUCATION IS ESSENTIALThe need for further training in the area is important in ensuring future growthPHOTO: SHUTTERSTOCK

Richard Thomas OBECEO, Gatehouse Bank and Chairman of UK Islamic Finance Secretariat (UKIFS)

The Islamic finance industry is rapidly expanding worldwide and there are unprecedented future developments in the pipeline.

Food for thought“New sectors for investment have included the increasing-ly popular halal food industry which in the future will see the integration of the halal brand and Islamic fi nance,” says Dr Farhad Reyazat, Editor in Chief of Global Islamic Finance Maga-zine. “In addition, there is much scope for funding for the Islamic fi nance industry. The Sukuk Is-lamic bond industry is also likely to fl ourish as more issuances are being made globally not only in Islamic fi nancial hubs but across many diff erent countries.”

Managing wealth ethicallyEthical considerations also make the market attractive. “The pro-hibition of Riba (interest) is one main factor that diff erentiates Is-lamic fi nance,” says Dr Reyazat. “It gives a way for people to manage their wealth without falling heav-ily into debt through interest.”

VIRGINIA BLACKBURN

[email protected]

Dr Farhad Reyazat, Editor in Chief of Global Islamic Finance Magazine


INSPIRATION

Taking account of Islamic fi nance

MODEL OF BANKINGIslamic finance offers a more ethical and less risky way of doing business, in line with the principles of Islamic lawPHOTO: SHUTTERSTOCK

“The major issue is the lack of comparability in fi nancial report-ing,” says Hijazi. “Islamic fi nance is spread around the world in the Gulf, Malaysia and the UK, but many jurisdictions have specifi c local requirements. This often re-sults in reporting under diff erent fi nancial frameworks, and it makes it diffi cult to compare Islamic fi -nancial institutions one on one.”

Standards to abide byIn 1991, the Accounting and Au-diting Organisation for Islamic Financial Institutions (AAOIFI) was established in Bahrain to be the standard setters of the indus-try, across several areas including

accounting, governance and au-diting. However, the AAOIFI standards have not been adopted in all countries with Islamic fi -nancial institutions. As a result of this AAOIFI now almost stands alone as an additional accounting framework which Sharia-compli-ant institutions must adhere to, and which not all actually use.

While international financial reporting standards are being ad-opted all over the world, these have

been specifi cally designed for con-ventional fi nance, never for Islam-ic fi nance, adding a further layer of complication. Typically, banks and accountants that work in Is-lamic fi nance have had to try to ap-ply them to products they were not developed for. This has meant that diff erent accounting treatments have been applied to some Islamic fi nancial instruments producing varying results.

However, as Islamic fi nance has

started to develop globally, this is beginning to change. KPMG is the auditor to the Islamic Bank of Britain (IBB), which was the fi rst Islamic fi nancial institution to be authorised by the FSA in the UK. Four more Islamic banks soon es-tablished themselves in the UK increasing the range of Islamic fi -nancial instruments.

Need for growthThe accounting treatment of those instruments was precedent setting at the time in the UK. “We had to consult technically with some of the most senior people in KPMG,” says Hijazi. “Going for-ward, it would help if there were a global Islamic bank the size of something like HSBC, because that would set the standard for others, but many Islamic banks are small and regional in compar-ison. Furthermore, while many global banks also issue Islamic in-struments, there is little disclo-sure around them as they are of-ten not very material in compari-son to the rest of the business.”

But this is changing. As Islam-ic fi nancial institutions develop greater volume and momentum around the world there is more de-mand for consistency in reporting of their performance.

■ Islamic finance is not just about investing — reporting its performance is an important ar-ea too. According to Samer Hija-zi, Financial Services Audit Di-rector at KPMG London, achiev-ing greater consistency around reporting for Islamic fi nance across the world is a major is-sue. Indeed, KPMG will be host-ing a round table with the As-sociation of Chartered Certifi ed Accountants (ACCA) in March, and will be jointly producing a report on the subject, Harmo-nising Financial Reporting of Is-lamic Finance.

VIRGINIA BLACKBURN

[email protected]

CHANGE

‘While many global banks also issue Islamic instruments, there is little disclosure around them as they are often not very material in comparison to the rest of the business’

Samer HijaziFinancial Services Audit Director, KPMG London

REAL ESTATE

■ There are two major issues when it comes to Sharia-compli-ant investment in real estate, ac-cording to Mike Rainey, partner at King & Spalding. “The asset it-self must be compliant, and while the building may be, the tenants may not,” he says. “Banks are not compliant and nor are hotels that sell alcohol, or cinemas. Then there is the fi nancing.

■ One option is a leasing ar-rangement, in which the bank buys the property and leases it to the customer. The customer makes lease payments to the bank and when the last payment is made the property is transferred into his name. The amount of the rental is substantially the same as if the customer had borrowed a loan and repaid it with interest.”

Islamic wealth management – the spirit of ethical entrepreneurshipAs Islamic finance continues to expand, it is the retail wealth management sector which is expected to lead industry growth. The challenge is that only a few wealth management products are currently available.

There are several unique features of Islamic fi nance which diff eren-tiate it from conventional fi nance. Sultan Choudhury, Managing Di-rector of the Islamic Bank of Brit-ain (IBB) explains, “Islamic bank-ing is ethical — it’s the faith-based form of ethical banking.”

“This means that its source of funding, profi ts and business in-vestments cannot be in or from businesses that are considered unlawful, i.e. companies that deal in interest, gambling, pornogra-phy, tobacco and other commod-ities contrary to Islamic values. Interest is considered eff ortless profi t which means no interest is received or paid by customers. Instead Islamic banking is struc-tured on principles of profi t and risk sharing and entrepreneur-ship. Rather than paying inter-est, Islamic banks share profi ts. Another big diff erence is that Is-lamic banking is asset-based and asset-backed.”

Islamic banks, including IBB, ensure Sharia compliance by ap-pointing a Sharia Supervisory Committee. This is comprised of Islamic scholars and experts who oversee the products.

With entrepreneurship as the guiding spirit of Islamic fi nance, IBB has been pioneering Shar-ia compliant and ethical ways for consumers to manage their wealth. Last year it partnered with Pointon York to accredit a range of SIPPs as Sharia compli-ant. It also accredited a Discre-tionary Platform Service by Prae-mium as Sharia compliant.

More products need to be de-veloped but IBB has taken the fi rst important steps. The indus-try as a whole is working with the UK Islamic Finance Secretar-iat (UKIFS) to address this, and other challenges.

VIRGINIA BLACKBURN

[email protected]

Sultan Choudhury, Managing Director, Islamic Bank of Britain and Executive Board Member, UKIFS

UNDERSTAND THE BASICS

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The programme can be delivered on university campus, via distance learning, or organised in-house within companies.

The programme is suitable for: graduates with a minimum 2.2 degree or equivalent background in economics, finance, accounting, mathematics, business studies or with relevant work experience.

Islamic Finance, with the operation of Shari’ah-compliant financial services, has seen global growth in recent years with more than 260 Islamic financial institutions operating and managing assets in the order of £500 billion. Since the UK Banking crisis of 2008 and the resultant economic downturn, the credit crunch has been felt worldwide. The Islamic Finance system promotes accountability, fairness and the principle of Shari’ah prevents any financial transaction engaging with Riba (return on investment/profit). Interest in Islamic Finance has, therefore, grown exponentially during this financial crisis. Despite this growth, there is low awareness of Islamic finance products in the mainstream marketplace and there is significant demand to educate business professions and financial institutions.

The British Government has committed to supporting the UK to become a pivotal centre of Islamic Finance (Islamic Finance & Trade Conference, 2008). Manchester, a leading UK centre for finance, has seen significant growth and investment in this area. To continue growth, trained professionals in all aspects of Finance including Islamic Finance are required to prevent future

irregular risk which has contributed to the global crisis. Committed to next-generation business education, Salford Business School Manchester, has an international reputation in finance and accounting, compelling research expertise in Islamic Finance including the development of financial frameworks compliant with Shari’ah Law, and a distinctive postgraduate programme in Islamic Banking. The programme, available either as a one-year full-time course or as an Executive programme offered part-time over 18 months to 5 years (on-campus, in-company or via distance learning), provides participants with advanced level skills and knowledge to contribute to the needs of a growing and sophisticated banking and finance sector and to provide significant competitive advantage for business.

Dr. Hussein Abdou, Senior Lecturer in Finance & Banking MSc Islamic Banking & Finance Programme DirectorSalford Business School, ManchesterEmail: [email protected]

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Over the last few years, Ber-muda has become one of the major hubs for Islamic fi-nance. In 2009, General Elec-tric issued a US$500 million Sukuk, the fi rst corporation in the Top 10 Fortune 500 to do so, structured using a Ber-muda limited liability com-pany. This has meant that the island is now seen as an im-portant offshore financial centre for Sharia-compliant instruments as well as more traditional ones. “We are a stable jurisdiction with a well regarded reputation for le-gitimate investments,” says Cheryl Packwood, Chief Ex-ecutive of Business Bermuda.

“We are the number one cen-tre for reinsurance and in the top three for insurance. We didn’t need to change our laws to provide a jurisdiction to

handle and maintain Islam-ic products. There is an enor-mous amount of intellectual capital on the island, in the form of fund administrators, lawyers, accountants, bank-ers and directors, and Bermu-da now represents an impor-tant jurisdiction for takaful and retakaful.”

Promoting growthPackwood has been travel-ling to the Gulf for some years in order to encourage busi-ness in Bermuda, but she was building on ties that were al-ready there.

The former Bank of Bermu-da, now HSBC Bermuda, has had a presence in Bahrain for decades. The Bermudian law fi rm Conyers Dill & Pearman has offi ces in Dubai and the Bermudan Elbow Beach Ho-tel is Saudi-owned. But such

has been the drive to win Is-lamic fi nance business that Bermuda now far outstrips all the other off shore centres in the region. It alone has is-sued guidance notes for the setting up of Islamic funds and disclosures and the role of responsibilities of the Sharia governing board, which were brought out by the Bermuda Monetary Authority last year.

Packwood works hard to maintain the relationship, travelling to Dubai and Bah-rain every year since 2008 and attending the World Is-lamic Banking conference in November last year. “We un-derstand the culture,” she says. “We pooled minds, put together an Islamic fi nance task force and brought clients to the area.”

Belaid Jheengoor, Direc-tor in the Asset Manage-ment Practice at Pricewater-houseCoopers Bermuda, says that the most popular instru-ment to be issued from the is-land is the GE Capital sukuk. “Our customer base comes in two segments,” he says. “In terms of the target market,

the GCC is our primary fo-cus, but we are also looking to the growing affl uent Mus-lim population in other parts of the world, most notably the UK, France and Canada. The appeal of these instru-ments is much broader than the Muslim demographic: for some investors, they are seen as socially responsible.”

He also believes that the global Islamic fi nance mar-ket has weathered the glob-al fi nancial storm. “The glob-al market for Sukuk was in-creasing at a signifi cant rate until 2007, after which there was a tail off ,” he says. “But it picked up in 2010 and by the end of this year we should see global issuances exceed the 2007 peak.”

Best to invest in Bermuda

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VIRGINIA BLACKBURN

[email protected]

The magic of Malaysia

One of the most important global centres for Islamic fi -nance is Malaysia, which is also the location of INCEIF, the Global University of Is-lamic Finance, the only insti-tution of its type in the world, which was set up in 2006. The fi rst Islamic bank, Bank Islam Malaysia (now simply Bank Islam) was established there in 1983, followed by Takaful Malaysia in 1984.

Setting the standards“The regulatory framework has also helped establish Ma-laysia as a centre for Islam-ic fi nance,” says Daud Vicary Abdullah, President and CEO of INCEIF. “The Islamic Bank-ing Act of 1983 was followed by the Takaful Act in 1984. In

1994 the sector was liberal-ised by allowing conventional banks to set up Islamic win-dows. International players entered the market, includ-ing Kuwait Finance House, Al-Rajhi and Asian Finance. A strong Sharia and govern-ance framework was also es-tablished via the Apex Shar-ia body at the Central Bank of Malaysia and the Sharia Advi-sory Council at the Securities Commission Malaysia.

Central hubMalaysia has the largest Sukuk market in the world with a 65 per cent share — US$96 billion in 2010 — and an Islamic interbank money market (IIMM) established in 1994 and hosted by BNM. Malaysia is also home to the Islamic Financial Services

Board (IFSB) — the inter-national standards setting agency for institutions off er-ing Islamic fi nancial services.

In 2010, the Internation-al Islamic Liquidity Man-agement Corporation (IILM) was set up to facilitate effi-cient management of liquid-ity by Islamic financial insti-tutions in the international financial system.

The launch of the Bloom-berg-AIBIM-Bursa Malaysia Sovereign Sharia Index (BMS-SI) in early 2011 marked an-other signifi cant milestone in the development of the glob-al Sukuk market. The estab-lishment of the Thomson Re-uters Ideal Ratings Islamic Indices in June 2011 was the fi rst Islamic benchmark that off ers research-based Shariah screening based on globally accepted standards to inves-tors, money managers and an-alysts across a range of Islam-ic instruments.

Education as keyUnsurprisingly, it is also a cen-tre of excellence in education.

“Most universities in Malay-sia, either public or private, provide a wide spectrum of formal Islamic fi nance edu-cation, beginning with Di-ploma, Degree, Master right up to Ph.D. level,” says Daud Vicary Abdullah. “For exam-ple, the Universiti Utara Ma-laysia (UUM) has established Islamic School of Business which off ers degrees at un-dergraduate as well as at Mas-ters level. The International Islamic University Malaysia (IIUM) has the Institute of Islamic Banking & Finance which provides formal edu-cation for undergraduate and graduate levels and IIUM’s Graduate School of Manage-ment off ers MBA with spe-cialisation in Islamic Bank-ing.” INCEIF itself off ers a Chartered Islamic Finance Professional (CIFP) qualifi ca-tion, a Masters in Islamic Fi-nance, a Ph.D. in Islamic Fi-nance and Research, Consul-tancy and Executive Training.

VIRGINIA BLACKBURN

[email protected]

■ Question: Is there an offshore fi nancial centre that specialises in Islamic fi nance?

■ Answer: Yes, the island of Bermuda, which is emerging as a global centre of excellence in the area.

■ Question: What was one of the fi rst international locations to be set up as a hub for Islamic fi nance?

■ Answer: Malaysia, in particular Kuala Lumpur, which is now one of the most advanced Islamic fi nance sectors in the world.

Daud Vicary AbdullahPresident and CEO of INCEIF

Belaid JheengoorDirector in Asset Management, PWC Bermuda

Cheryl PackwoodChief Executive, Business Bermuda

IMPRESSIVE SKYLINEThe Petronas Towers in Kuala Lumpur are the tallest twin buildings in the world and dominate the city’s skylinePHOTO: SHUTTERSTOCK

IDYLLIC SETTINGSThe island of Bermuda is a suprisingly active outpost for Islamic financePHOTO: SHUTTERSTOCK


PROFESSIONAL INSIGHT

Islamic finance could have averted the global meltdown

As the dust continues to settle in the wake of the global financial crisis, there is a growing percep-tion that had the tenets of Islam-ic finance been more widespread, the damage to the global econo-my would have been nothing like as bad.

Entrepreneur and former drag-on on BBC’s The Dragon’s Den James Caan, who founded the Hamil-ton Bradshaw private equity firm thinks so: “If you look at the basic principles of Sharia-compliant in-vestment, you see that it doesn’t pay interest, but takes a share of the profits,” he says. “That means there must be some underlying profitability in the investment, whereas the crisis was caused by highly complex derivative prod-ucts often far removed from the

underlying assets. Had Sharia principles been more widespread, the crisis would not have been as catastrophic and would have been easier to manage.”

Crisis worse in the WestIndeed, following Sharia-compli-ant principles, some of those toxic assets would never have existed in the first place. “If you look at coun-tries that use Islamic finance, the crisis is not as severe as it is in the West,” he says. “The investment is in an underlying security, such as property or commodities, which is easy to understand, whereas with highly leveraged complex finan-cial instruments, the underlying quality is questionable. There is

also the question of transparency. The credit agencies were giving all these junk bonds AAA ratings, whereas under Sharia, there is a far greater system of checks and balances.”

Financial disciplineWhile he doesn’t believe that all Western financial institutions will adopt Islamic finance as such, Caan does believe that they could learn a lot from Sharia-com-pliant methods. “There is a ques-tion of financial discipline, of rec-ognising the importance of the quality of the underlying assets and their robustness to generate sufficient returns to make finance repayments sustainable,” he says.

“This is a conservative view of building wealth.”

Strengthening TrustAny budding entrepreneurs wish-ing to raise funds from the Middle East should take that different ap-proach on board, according to Nick Judd, Founder Partner of 90 North, the investment firm specialising in Sharia compliant real estate, of which James Caan is Chairman. “The Middle East is risk-averse,” he says. “Business relations are based on trust and can take a long time to build. You can’t raise money quick-ly – it takes months, if at all. People also want to see businesses with an established management whom they can trust.”

“In the Middle East, you have to be introduced — the prospect of cold calling is no good,” adds James Caan. “If you want access, it is less about transactions, and far more about relationships. In the West, you produce a business plan, have a meeting and expect a response, but that will not work in the Gulf. Your approach must be very different from the West.”

■ Question: Is Islamic finance a more cautious approach to investing than traditional Western methods?

■ Answer: Yes, if the principles had been more widely adopted, it could have stopped the recent financial catastrophe.

VIRGINIA BLACKBURN

[email protected]

CHANGE

‘Had Sharia principles been more widespread, the crisis would not have been as catastrophic and would have been easier to manage’

James Caan, Entrepreneur and Founder of Hamilton Bradshaw

90 North Real Estate Partners, based in Mayfair, is a specialist in Sharia-compliant real estate investment. In partnership with James Caan, fellow Founder Partners Philip Churchill and Nicholas Judd have concluded approximately £1.1billion of Sharia compliant transactions over the last decade.

The organisation establishes an investment strategy, then leads the purchase process, covering all aspects of achieving a success-ful real estate acquisition, includ-ing due diligence, financing, legal and tax, all as part of an efficient and Sharia compliant structure.

“Islamic assets under manage-ment are rapidly approaching a $1trillion worldwide and I expect this to continue growing strongly - not just due to the rapid growth of the global Muslim population but the increasing sophistica-tion of Islamic finance, relative security of assets and parity of re-turns available compared to con-ventional investment products,” says Caan.

VIRGINIA BLACKBURN

[email protected]

SHOWCASE

PROMOTING GROWTHLeft: Entrepreneur James Caan at the UCI Qatar Investor Conference. He believes Western financial institution could learn a lot from Sharia-compliant methodsPHOTO: PRIVATE

UNCOVER SHARIA COMPLIANT OPPORTUNITIESCOMPLETE WORKFLOW SOLUTIONS FROM THOMSON REUTERS.

Thomson Reuters is proud to have been at the heart of Islamic banking since the first commercial Islamic bank was established in 1975. A trusted partner to many international clients, we deliver unrivalled market data and transaction solutions, as well as all supporting legal, compliance and risk infrastructure required. We provide the structure that enables real-time transactions in Islamic interbank and equity markets.

Let Thomson Reuters help you uncover more opportunities in Islamic markets. Visit financial.thomsonreuters/islamicfinance or email [email protected] for more information.

No. 1 / Jan. ’12 ISLAMIC FINANCE - Mediaplanetdoc.mediaplanet.com/all_projects/9499.pdf ·...

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