Hong Kong may lack the mystique of the ancient Silk Road trading routes linking China to Europe but, according to an expert in Islamic finance, burgeoning trade between Asia and the Middle East has put the city in a good position to be part of one of the 21st century's thriving trade arteries.
"By expanding its platform of Islamic financial services, Hong Kong has the potential to be part of the new economic Silk Road linking Asia to the Middle East," says Dr Khoo Guan Seng, head of the Singapore Stock Exchange's Innovative Unit.
He says expanding bilateral trade between Asia and the Middle East has created a gap between the financing and investment needs on both sides, opening up attractive opportunities for Hong Kong.
Khoo says the most promising career opportunities revolve around the structuring and management of financial products compliant with Sharia law rather than plain-vanilla Islamic retail banking. There are also opportunities for accountants and tax professionals familiar with or willing to learn the skills necessary to provide services that meet Sharia requirements. Although specific financial products - such as mortgages and savings accounts - need to be structured to comply with Sharia law, non-Muslims can provide the services, he adds.
To explain how Hong Kong can leverage on opportunities in Islamic finance, Khoo will headline a seminar on "Islamic Finance: Opportunity and Risk", jointly organised by Classified Post and Kornerstone in Hong Kong on March 7.
"Islamic finance is a rapidly growing part of the global financial system and Hong Kong is in an excellent position to capitalise on that growth," Khoo says. "With increased awareness and some financial innovation, Hong Kong has the ability to be an effective intermediary for structuring and marketing Islamic investment products to meet the needs of Asian enterprises and Middle Eastern investors."
He says for this to happen it requires a larger pool of liquidity in the secondary market, which can only arise from a greater variety of Sharia-compliant investment instruments, a better understanding of Sharia regulations and investment processes, and improved insights into the attendant risks. Khoo says Islamic-principled finance could be structured around the growing need for oil and gas around the region, and the high demand for Chinese products in Middle Eastern countries. With Islamic or Sharia mechanisms in place, investors from the Middle East would have better opportunities to participate in Asian infrastructure development, education, non-pork food production and distribution, health care and other areas that are compliant with Sharia principles.
Sharia prohibits investments in alcohol, gambling, pornography, tobacco, weapons, pork products and businesses that produce media gossip columns. Investments should also conform to Islam's prohibition of receiving or paying interest. Instead of paying interest, borrowers and lending banks could work on profit-sharing vehicles that divide profits from underlying businesses such as commodities or properties.
And instead of lending a customer money to buy an item, a bank might purchase the item itself from the seller, and resell it to its customer at a profit, but paid in instalments, thereby avoiding interest payments.
Khoo says the structure of Sharia-compliant investing can be compared to private equity or venture capital investments, where the investor and borrower share the risks and returns.
During his keynote address to the Hong Kong Islamic Finance News Roadshow last year, Edmond Lau, executive director for monetary management at the Hong Kong Monetary Authority, reaffirmed the government's commitment to nurture Islamic finance in the city.
Lau said the development of Islamic finance was a long-term initiative, which should not be affected by cyclical factors or individual credit events. But, ultimately, he said that the pace of development of Islamic finance in Hong Kong would be market-driven.
Date: March 7, 2011 (Monday)
Venue: 15/F, Hong Kong Club Building, 3A Chater Road, Central
Admission: Standard rate, HK$1040; Early Bird Rate, HK$780 (on or before February 25, 2011)
Enquiries: Classified Post, 2565 2426; KORNERSTONE, 2116 3328
Islamic banking at fledgling stage
With the global Islamic financial market worth an estimated US$1 trillion and growing by about 15 per cent annually, Hong Kong is keen to compete for a slice of this burgeoning pie.
Driven in part by Chief Executive Donald Tsang Yam-kuen’s 2007 statement that Hong Kong would like to become the region’s Islamic financial hub, new and established banks have been churning out Islamic or Shariacompliant banking products.
Hang Seng Bank took the lead in launching Hong Kong’s first Islamic fund, while Middle Eastern entities have been long-term investors in the city’s stock market and property sector. However, recruitment specialists say local hiring demand for Islamic banking professionals has been tepid. They say if banks such as HSBC or Standard Chartered need someone to take charge of their Hong Kong Islamic operations, they usually move them from a Middle East or Malaysian position.
Khoo Guan Seng, head of the Singapore Stock Exchange’s Innovative Unit, says this could change by expanding training and educational support for Islamic finance and boosting public awareness. Khoo will cover Islamic finance’s challenges and opportunities at a seminar on March 7, jointly organised by Classified Post and Kornerstone.
Khoo says one of the main obstacles to the development of Islamic investment options is a lack of infrastructure. Although Hong Kong has a well-developed financial system, it still has to build a parallel support infrastructure for Islamic banking and finance.
"With the right structuring and Sharia-friendly synergies, new investment vehicles could be launched that would appeal to pension funds looking for short- and long-term investment structures,” Khoo says.
He believes that China and Middle Eastern sovereign wealth funds may also consider forming partnerships to launch Sharia-compliant funds to invest in infrastructure in places such as India and Indonesia. “The investment does not necessarily have to be made in Hong Kong, but Hong Kong could be the place where these investment tools are constructed and managed,” he says.
To develop a pipeline of local Islamic market practitioners, Hong Kong’s Treasury Markets Association (TMA) has been providing relevant education programmes, workshops and seminars. The TMA also collaborates with other Islamic financial centres, such as Malaysia, to explore how it can strengthen co-operation, and position Hong Kong as a preferred Islamic gateway for China.
To broaden the field in Islamic financial education, the Chinese University of Hong Kong has joined forces with Kuwait-Asia University to set up a business school in Kuwait City. In addition to an Islamic finance distancelearning course offered through the Hong Kong branch of the Chartered Institute of Management Accountants, the institute also collaborates with the Hong Kong University School of Professional and Continuing Education to offer programmes in Islamic finance.