Hong Kong should not miss out on growing Islamic finance market

Seven years after Hong Kong authorities first spoke of making the city a hub for "Islamic finance", they may finally do so in 2014. After making changes to local tax laws last summer, the government announced last month that it will issue an Islamic bond through its government bond programme, which makes regular issuances to the public and institutional investors.

Once it crosses the final hurdles in the Legislative Council, the government could issue its first Islamic bond later this year.

Yet, why should Hong Kong go to all this trouble when the government has no need to raise funds? Why does it think an issuance would be attractive to investors? And why is it appropriate for a non-Muslim country to risk taxpayers' money promoting Islamic finance?

The government's response to such questions is that Hong Kong wants to position itself as a global centre for the US$1.3 trillion Islamic finance market. "A government issue of sukuk [a financial paper that complies with Islamic law] would tell the world that Hong Kong provides the platform for overseas companies to come here and issue Islamic bonds," said Jackie Liu, a principal assistant secretary for financial services and the treasury.

Islamic financing is a fast-growing part of the global financing business. The International Institute of Islamic Finance estimates annual growth rates of 15-20 per cent.

Further, Islamic financing carries a higher profile in the media than conventional financing. This might be because it is novel or, more likely, it can be seen as a political move since religion, government and politics are brought together in the eyes of the public.