Vince Cook, chief executive of Singapore-based Islamic Bank of Asia claims that interest in Islamic banking is progressively crossing over from the conventional market, as investors look for a ‘third way’ in light of the subprime crisis.
Cook’s claims come on the back of Islamic Bank of Asia’s (IB Asia) Shari’ah board concluding research on a steadily-growing stream of investors from both Islamic and non-Islamic investors.
Shaikh Nizam Yaqouby and Dr. Mohammed Daud Bakar, both members of IB Asia’s Shari’ah board, said that while changes in the global investment climate are driving demand for Islamic banking, it is the development of innovative Shari’ah compliant products that will help grow the industry.
“Shari’ah scholars have been leading the way in innovation. Investors now demand more than just debt finance, or lending and borrowing, in their products. They want to participate in the assets and this creates real economic value,” said Yaqouby.
Cook argued, “More investors, whether directly or indirectly affected by the subprime crisis, are being drawn to investment vehicles which are underpinned by an inherent immunity from risk.”
He also explained that financial centres such as Singapore were discovering the growing importance of Islamic banking and developing their financial services industry to take advantage of the growing interest in Islamic finance from non-Muslim sources.
In current market conditions, he continued, international institutional investors were looking for investments that shielded them from the worst ravages of the financial crisis. Given that by its nature, Islamic investment forbids exposure to debt-based financial institutions, these funds were stating to look attractive as a hedge against subprime afflicted intuitions.
Cook also said that Asia was having a greater impact on the development of global Islamic finance than it was being given credit for. “When you listen to a discussion about the growth of Islamic finance, all the headline-grabbing stuff is about Middle Eastern petrodollars.”
“In fact, the real engine for growth is Asia, with its huge Muslim populations. These nations, such as Indonesia, have never had the option of banking Islamically, and there is a growing grassroots demand for this kind of service.
“It is the banks in South East Asia which are servicing this demand, and it is these banks that are being the most innovative and dynamic in the global Islamic banking sector, and the future growth in Islamic banking will come from this region,” he concluded.