Sharia expert lauds HK potential

PUBLISHED : Monday, 21 January, 2008, 12:00am
UPDATED : Monday, 21 January, 2008, 12:00am

Although Hong Kong does not have a big Muslim community, the city could well develop Islamic finance due to its sound financial infrastructure and good investment environment, according to an adviser to the central bank of a long-established Islamic financial centre - Malaysia.

Daud Bakar, chief executive of the International Institute for Islamic Finance and a member of the Advisory Council of the Bank Negara Malaysia and the Securities Commission of Malaysia, said Hong Kong's physical distance from a strong Muslim presence made little difference to its potential as an Islamic financial centre.

Investors in the Middle East and other Muslim countries can access the internet or other modern communications technologies to trade Islamic bonds or funds offered out of Hong Kong.

'The product providers and the investors can be in different parts of the world,' Dr Bakar told the South China Morning Post while in town last week.

'As long as the Islamic products in Hong Kong are attractive, Muslim investors would be interested in trading them here,' he said.

Islamic finance requires a different set of disciplines that comply with sharia law, religious rules in which Dr Bakar is an expert.

Sharia bans investment in certain industries such as alcohol and gambling as well as companies that are over-leveraged or take too much risk. It also forbids charging interest.

By Dr Bakar's tally, the Islamic finance industry is worth between US$300 billion and US$500 billion, up from US$200 billion just two years ago, thanks to rising oil prices lining the pockets of Middle Eastern investors.

Since Chief Executive Donald Tsang Yam-kuen made known his strategy to explore Islamic financial services last October, the Hang Seng Bank has issued an Islamic index fund that invests in mainland stocks which are sharia-compliant.

Dr Bakar said he believed more Islamic index funds or equity products should be developed ahead of the launch of Islamic bonds, given Hong Kong's established stock market.

For Hong Kong to develop Islamic finance, he said training about sharia laws and how to promote compliant products would be an important tool. He lauded the Chartered Institute of Management Accountants' (CIMA) six-month self-study programme on Islamic finance.

CIMA Hong Kong director Damian Yip said the course should prove popular as many banks, brokers and regulatory staff in Hong Kong and other financial centres lacked understanding of sharia.

Sharia restrictions work both ways, Dr Bakar pointed out. Although Islamic finance may not achieve aggressive returns, it also could prevent investors from suffering losses by avoiding highly geared and risky investments.

'According to Islamic rules, we banned investing in Enron two years before its collapse as it was over-borrowing. Islamic financial products also ban receiving interest so we do not suffer from the US subprime mortgage crisis,' he said.

For the uninitiated investing public, the adviser of one of the world's largest Islamic central banks said: 'Islamic finance is not for chasing after short-term gains. But it is rewarding if you don't want to take too much risk and hold a long-term view.'