Islamic finance still a pipe dream for Hong Kong
City's attempts to capitalise on the growing Islamic funding market have been continuing for some time, but little progress has so far been made
Hong Kong has been talking about Islamic finance for seven years with little to show for it.
The essential logic of Islamic funding is compelling. China's capital needs are growing exponentially. China's bond market is projected to soon become the world's second largest. The global financial crisis showed the US dollar and euro markets of the West are vulnerable to crisis and shutdowns, showing the value of diversification to other capital bases, such as the Middle East's.
I can’t see [Islamic bond structures] being much interest to mainland issuers
"There are two important developments for the global financial market. One is the internationalisation of the yuan … and [the fact that] Islamic finance is getting more prominent in the global market," said Peter Pang Sing-tong, deputy chief executive of the Hong Kong Monetary Authority (HKMA).
The member states of the Gulf Co-operation Council and their sovereign wealth funds collectively control US$2 trillion of assets. Islamic finance restructures assets so they do not pay interest - forbidden under Islam - and instead pays out income in the form of profits or rental income.
It was notable that the British government last week announced a plan to bring a £200 million (HK$2.6 billion) sukuk, the first Islamic bond to be issued by a Western government. This stole the thunder from Hong Kong's own sukuk issuance planned this year to raise up to US$1 billion - but it showed Hong Kong to be on the right track.
"We are expanding into the sukuk market. It's important for Hong Kong," said Pang.