Saudi Aramco IPO may more than Quadruple Islamic Finance Industry Size.
Current estimates of the size of the global Islamic finance industry range from $1.66 trillion to $2.1 trillion. Recent announcements from Saudi Aramco may be about to give these numbers a supersized boost with a potential valuation and IPO of up to $10 trillion.
“We have seen more maturity in private equity in recent years with sellers better understanding the value these transactions can bring beyond just capital raising. They also view it as a preferable option to IPOs [initial public offerings].
As Dubai aspires to become the global hub for Islamic economy, Islamic banking and Islamic capital markets are expected to grow simultaneously, said Adnan Chilwan, CEO of Dubai Islamic Bank. Clearly Islamic capital markets are relatively new phenomena. Earlier it was much simpler that if someone needed finance they would go to a bank and the bank would leverage its balance sheet and give a loan. Then it started becoming a little more sophisticated by many banks joining in together to do a syndicated deals. Then a stage came where banks started to participate in cross border deals.
African governments are looking to sharia-compliant financial markets to attract investment from the Middle East. The trend is just gathering strength, and experts expect more funds to flow into infrastructure and other major projects.
The latest wave of finance to reach African corporations and governments is coming from the Middle East, with an increasingly large sharia-compliant component.
HSBC’s decision this year to stop offering Islamic products in many of its markets has sent shock waves through the Gulf region, one of the global hubs for Islamic finance.
The move underscored the difficulties facing even the largest conventional lenders that have tried to lure new customers to bank in compliance with Muslim sharia law.
As investors looked on in dismay at the 2009 default of Islamic bonds from Saudi Arabia to Kuwait, many critics forecast the demise of the Gulf’s sharia-compliant industry.
Islamic bond structures were seen as too complicated and too far removed from the real economy. While financial instruments appeared to be based on collateral, they turned out to be just like any other conventional product.
The concept of Islamic finance, banking and economics has gained tremendous popularity of late. It is appreciated and implemented not only in countries where Islam is the dominant religion, but also in non-Islamic nations. The basic premise of Islamic finance, banking and economics is based on ‘hygienic’ ways of doing business as prescribed by the Islamic Law or Shariah.
Islamic banks now provide the best returns on cash deposited for two, three, four and five years – and these market leading rates are encouraging more UK customers to put money into sharia-compliant accounts.
Since advertising savings rates of up to 4.8 per cent on comparison sites such as Moneysupermarket.com, the Bank of London and the Middle East (BLME) has seen a fourfold increase in customer deposits.
There is no doubt of the potential for Islamic finance in Russia and the CIS countries, but the major stumbling block is the absence of enabling legislation and a regulatory framework to facilitate Islamic financial products such as Murabaha, Ijara and sukuk.
These sentiments could not have been articulated better at the Moscow Forum on Islamic Finance & Investments which was held in the Russian capital last Thursday and attended by a host of local and international participants including Ali Hassan Jaafar, the Saudi Arabian Ambassador to Russia.
Few took notice outside certain coteries of specialist bankers and lawyers, but the launch of a 42 page master documentation for derivatives that comply with Muslim religious principles could have a far-reaching impact on the Islamic finance industry.
The International Islamic Financial Market (IIFM), a Bahrain-based Islamic capital markets body, and the International Swaps and Derivatives Association (ISDA) have for the past four years been working on standardised documentation for derivative instruments that comply with sharia, or Islamic law.