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WFE Focus April 2011
The art of Islamic finance
Peter Clifford
Deputy Secretary General,
WFE

In some places, financial products such as indices and funds that are based on religious or moral beliefs are considered an alternative form of investment in contrast to the mainstream market that is benchmarked for (geared to assuring) maximum shareholder and lender returns.

In other parts of the world, taking such criteria into account is permitting financial instruments to broaden the investment horizon, allowing for diversification of holdings. One such area of growth and creativity is Islamic finance.

Despite or perhaps because of harsh realities of markets, there are several global trends that look to harness the power of markets (investment) in new or different ways. Some recent examples are carbon markets and the launch of exchanges for social enterprise. Other initiatives have a longer track record, such as the development of corporate governance codes, and now integrated reporting.

Investing in accordance with faith also has long history, but not one that has been widely documented. In Focus this month, two exchanges report what has been accomplished in leading the developments of a rapidly growing investor segment – Islamic finance.

As Huseyin Erkan, the Chairman and CEO of Istanbul Stock Exchange, enumerates, an enormous amount of work is being accomplished on standards for investing that meet the requirements of faith. These developments can be seen in the growth already registered for the sector, and also in a range of new products that will not only diversify and strengthen the base of acceptable products for the investment community, but also have the potential to facilitate investment in the real economy. Matching the rich resources with an improved capital market system is the key to success.

Bursa Malaysia also has considerable experience within Islamic finance, going back as far as the 1980s. The alternative fixed-income market and Sukuk investments, as well as Shari'ah-compliant equity investment, are part of this growth industry with over USD 1 trillion that is expanding at 25% annual rate.

In addition , in Focus this month, the CEO of the Tokyo Stock Exchange, Atsushi Saito, recounts the resiliency of the Japanese people and economy after the devastating disasters of March 2011. His article provides insights into how from this tragedy an economic turning point may have been reached.

 

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