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Lucrative sector set to take off
Published on Friday, 15 Jan 2010
Despite the Dubai debt crisis, the potential for Islamic finance is buoyant with bright prospects.
Photo: Bloomberg

It may be one of the fastest-growing sectors of the international banking industry and Hong Kong wants to be part of it. Yet the government's enthusiasm to establish Hong Kong as an Islamic banking hub is still at an early stage.

Unlike Malaysia, Indonesia and Singapore, Hong Kong is a relative latecomer to the Islamic banking and finance industry which, according to Moody's Investors Service, accounts for about US$1 trillion in assets and is growing at 10 to 30 per cent per year.

According to his views at the Islamic Finance Symposium held in Tokyo in November, Secretary for Financial Services and the Treasury Chan Ka-keung believes Hong Kong is moving ahead to put in place a platform conducive for the development of Islamic finance.

"We believe Hong Kong is well placed to become a centre for Islamic finance in Asia. Our sound financial services infrastructure and well-established legal system make Hong Kong an attractive location for such investments," he said.

To support the development of the government initiative and build up Islamic finance expertise, there need to be courses that are more relevant and training for local financial personnel.

However, recruiters say there has been very little demand for their services in finding positions for finance professionals with Islamic banking experience. They say that if a major bank needs someone to take charge of their Hong Kong Islamic operations, they usually move them from the Middle East.

To gain a foothold in the field of financial education, the Chinese University has joined forces with Kuwait-Asia University to set up a business school in Kuwait City. Professor Wong Tak-jun, dean of the faculty of business administration at Chinese University, says when fully operational, Hong Kong students can spend part of their diploma or regular MBA programmes in Kuwait.

"What we are doing might be described as visionary, but if we can develop close collaboration and regular exchanges we will provide students with an insight into markets and the mechanics of Middle Eastern finance and business," Wong says.

"At the moment, Islamic and Western-style banking systems tend not to complement each other too well. We tend to interpret Islamic banking concepts with Western-type banking principals. What we need are people with Western-type financial training to really get to grips with Islamic banking systems and design ways to solve issues from an Islamic perspective."

Despite the Dubai debt crisis, Wong says looking to the future the potential for Islamic finance education remains buoyant with bright prospects. "Islamic finance is somewhat new and just the same as happens in other markets, there will be rise and falls, but the long-term prospects look very bright," he says.

In addition to an Islamic finance distance-learning course offered through the Hong Kong branch of the Chartered Institute of Management Accountants (Cima), the organisation has also collaborated with the University of Hong Kong's School of Professional and Continuing Education to offer taught programmes in Islamic finance.

Damian Yip, divisional director of Cima Hong Kong, says the taught programmes appeal not only to bankers but also to accountants and lawyers, many of whom work in Hong Kong on behalf of Middle Eastern sovereign funds that invest in projects on the mainland.

"I don't think Islamic finance in Hong Kong is looking towards the retail sector, it is the growing investment opportunities between the Middle East and the mainland. Hong Kong is essentially building a bridge to bring together two of the world's richest and increasingly influential regions," Yip says.

Yip points out the main drawback at the moment, appears to be infrastructure. "Although Hong Kong possesses a sophisticated financial system, there is still a need to build a support system for Islamic banking and finance. This includes overcoming double taxation issues and creating a climate where Islamic investors can feel confident that their investments strictly follow Islamic principles," he says.

Following decades of planning, and ignoring the debt crisis in Dubai, the National Bank of Abu Dhabi opened its first Hong Kong branch last month. "We chose to open our first Asian branch in Hong Kong because it is close to China and other parts of Asia," says Michael Tomalin, the group chief executive. "We found a lot of Middle East clients who are interested in doing business in Asia and we have also seen that many Asia investors like to do business in the Middle East."

Trade between the mainland and the Middle East is expected to grow to US$100 billion in two years, from today's estimated US$65 billion. Both sides sit on trillions of foreign exchange reserves - China from its exports and the Middle East from rising oil prices.

Bruno Lee, HSBC regional head of wealth management, Asia-Pacific, also sees a bright future for Hong Kong's move into Islamic banking. Lee says launching Sukuk products in Hong Kong last year is a first step for HSBC's Hong Kong operation to tap into the markets in the Middle East and other Islamic countries, and to help broaden Hong Kong's capability as a global financial centre.

"Though the development of Islamic finance in Hong Kong is still in its infancy, by offering sharia-compliant products, we hope to provide more alternatives for Hong Kong investors seeking a diversified investment portfolio," Lee says.

Sukuk, which conforms to Islam's prohibition of receiving or paying interest, typically works as profit-sharing vehicles.

For example, companies that issue Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest.

Sukuk investment concepts also prohibit money from being invested in alcohol, gambling, pornography, tobacco and pork.


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