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Islamic finance: The next big thing

Islamic finance: The next big thing

Islamic finance is maturing, according to experts, and could be on the cusp of becoming a mainstream option. But there are still issues to be ironed out.

July 19, 2010 3:34 by

And one of the biggest challenges for bankers interested in Islamic financing is the variation in what is considered Shariah-compliant. For instance, the sukuk issued by Sabic is ruled on by Shariah courts in Saudi Arabia, Al Morished says, which he notes “tend to be more conservative than our brothers in the GCC.”

Developing new products can be an arduous process. Scholars may make decisions without giving much explanation to the company attempting to issue a Shariah-compliant instrument. The Malaysian-based Islamic Financial Services Board is attempting to introduce some standardization. Currently the board is reviewing possible regulations on capital requirements.

“How big a crisis you have to be able to survive is the subject of huge debate,” the director of policy and Islamic finance at Dubai International Financial Center, Peter Casey, says. “We’re going to get new liquidity standards. The numbers may not be what some have predicted but we’re going to get them. And in many countries they will be applied just straight on to Islamic financial institutions.”

The countries with a serious concern for Islamic finance will probably want to see them adapted, and the Islamic Financial Services Board is already working on how those standards can be adapted with Islamic finance, says Casey.

A report from the International Institute of Finance in May says local debt markets need to be better developed, but Casey says that Shariah-compliant money markets need to be developed first.

Trends Magazine

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