KUALA LUMPUR, June 6 Top Islamic banking
officials will meet in Singapore this week to discuss ways to
revive an industry which has stalled as interest in new markets
cool and legal uncertainties cloud the role of sukuk as funding
Once touted as a viable alternative to traditional banking,
Islamic finance has failed to make a mark outside its core
markets as countries from Britain to Hong Kong and Australia
put on hold sukuk issuance plans and proposed regulatory changes
to accommodate sharia banking.
Its reputation stained by Dubai's $26 billion debt crisis in
2009, Islamic finance is struggling to attract investors'
attention with emerging markets flush with funds, in contrast to
2008 when the global crisis shut down credit markets and
prompted a search for alternative sources of finance.
"Islamic financing has been clouded by the sovereign debt
issues in Europe and quantitative easing has resulted in a lot
of funds from the U.S. moving into various emerging markets,"
said Anuwar Idris, head of marketing and business development at
Affin Fund Management in Kuala Lumpur.
Dwarfed by the size and financial muscle of its conventional
banking rival, the $1 trillion Islamic finance industry needs to
find new markets beyond the Middle East and Southeast Asia for
In the first meeting of top officials since the Middle East
unrest broke, Gulf and Asian regulators and bankers will gather
in Singapore on Wednesday and Thursday to restore confidence in
sukuk as fund-raising instruments.
Several high-profile sukuk defaults have thrown up legal
uncertainties such as the extent to which sukuk holders own
assets underpinning the issue when the instrument sours.
Kuwait's International Investment Group defaulted
on two sukuk payments last year, and The Investment Dar, which
owns half of British carmaker Aston Martin, defaulted on sukuk
in May 2009. U.S. energy firm East Cameron defaulted
on its sukuk issue in 2008.
The legal uncertainties contributed to a drop in Islamic
bond issuance last year, bankers have said. Sukuk sales fell 26
percent to $14 billion in 2010, according to Thomson Reuters
Badlisyah Abdul Ghani, chief executive officer of Malaysia's
CIMB Islamic Bank, said the industry would pick take some time
to pick up.
"When Islamic finance was introduced in Malaysia, it took a
few years before other players started to pick up the business,"
he said. "When it was opened to 1993 to other players, it took
about five years before we saw a lot of momentum."
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(Reporting by Liau Y-Sing; Editing by Ramya Venugopal)