| SINGAPORE, June 9
SINGAPORE, June 9 Strong oil prices will spark
renewed interest in Islamic finance but the $1 trillion industry
is unlikely to garner broad acceptance in the long term,
eclipsed by the products and pricing offered by conventional
With oil at over $100 a barrel, investors are expected to
flock to Islamic finance in hopes of another Gulf petrodollar
boom, similar to 2008 when record energy prices propelled the
industry into the global spotlight.
During the last boom, the credit crisis and the collapse of
Lehman Brothers and bailout of banks such as Citigroup and
Bank of America reinforced the case for non-Muslim governments
from France to South Korea to consider Islamic finance.
But as the crisis eased and credit markets reopened,
interest in Islamic finance dried up. Parliaments delayed
passage for sharia banking bills and potential sukuk issuers put
their plans on hold.
And bankers say it could be a case of repeat and replay this
time round, with Islamic banking products unlikely to sustain
wide interest outside their traditional Muslim markets.
"Islamic finance will be an ingredient in the financial
fabric but it will not be a major engine of growth in Hong Kong
or Korea or Japan," said Brian Shegar, Asia-Pacific head of
Dubai's top bank Emirates NBD .
"People want to get the best-priced financing. There is no
such thing that if you go to the Islamic route you'll get
cheaper financing. In many countries, there's a lot of
conventional liquidity so there's no urgency to look for
alternative forms of financing."
Islamic banking has a strong following in Middle Eastern
countries such as Bahrain, Qatar and the United Arab Emirates
and Asian economies such as Malaysia.
New markets have come onstream in recent years, with plans
in the pipeline for the first sukuk issues by Kazakhstan and the
Palestine Monetary Authority. [ID:nLDE75404Q][ID:nLDE74I0T6]
But the industry, which avoids investments in gambling,
alcohol and pornography, has seen an earlier drive to embrace
its brand of finance fizzle out in many non-Muslim majority
A South Korean government bill to introduce Islamic bonds
has been put on hold following opposition from some lawmakers
and Christian groups. [ID:nTOE720045]
Hong Kong has been waiting for its first sukuk issue since
2008 but unattractive tax laws and challenging market conditions
have deterred potential borrowers.
Similarly, France is awaiting its first Islamic bond which
was due out early this year, while state-owned Islamic Bank of
Thailand is still ironing out details of its long-delayed 5
billion baht sukuk issue. [ID:nLDE6BE0T4][ID:nSGE72603S].
For investors seeking a price advantage, Islamic financial
instruments can be a more costly alternative unless regulators
have adjusted the tax structure. As the religion prohibits
charging interest for loans, financing is often structured as
asset sales which tend to be taxed at several levels.
Islamic finance says that the sharia's ethical safeguards
prevent it from the type of speculative transactions that led to
the U.S. sub-prime mortgage crisis but some bankers see the
restrictions as a hindrance to growth.
"If you've got a golfer who can play with a full set of golf
clubs and he's going to play against someone who's only got one
golf club, who's going to win? That's the difficulty," said
Timothy Peach, executive director of Man Investments (Singapore)
Pte Ltd, which is a part of Man Group , the world's
largest listed hedge fund firm.
Conventional banking products like hedge funds are generally
off-limits for Islamic finance as some religious experts view
common hedging techniques as speculative bets on currency and
stock movements, which sharia law forbids.
(Click on [ID:nISLAMIC] for more Islamic finance stories and
for a speed guide)
(Editing by Kim Coghill)