Credit crunch a ‘golden opportunity’

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The global credit crunch is a blessing in disguise for Islamic finance as international debt markets enter a new era, according to industry observers.

“Now is a golden opportunity for Islamic finance to provide an alternative model which, by its very nature, binds both the real and financial economies – just what the world needs right now,” Swati Taneja, conference director of the Islamic finance industry’s leading global event, the twice-yearly International Islamic Finance Forum that next takes place in Istanbul from 13 -17 October 2008.

“There has never been a more interesting time for cautious investors burned in the conventional credit crunch to begin looking at what the Islamic markets have to offer,” Taneja added. “For Islamic financial products to be compliant they avoid excessive gearing and speculation - precisely what regulators are looking for the world over in the new era we are entering.”

The Istanbul forum provides the first major opportunity for Islamic finance practitioners from around the world to assess the impact of the turmoil that has gripped international markets in recent weeks.

“In today’s globalised markets financial products of all types – Islamic or conventional – are affected,” said Taneja. “But what is clear is that Islamic finance practitioners are identifying new markets as a result and are likely to have renewed confidence in the inherent sustainability of the Islamic finance model. Some are even suggesting Islamic products could provide safe havens in these challenging times.”

Events in world markets in recent weeks have illustrated that the Islamic finance industry, cannot remain entirely immune from turmoil on global markets. It has, however, avoided the toxic debt problems of the conventional industry.

Nevertheless, the Islamic debt market, which was doubling in size every year reaching a total of $90 billion, has slowed. In the first eight months of this year, Sukuk (Islamic bond) issuance fell to $14 billion compared $23 billion over the same period last year, according to Standards & Poor’s.

“Some blame the credit crunch for reducing the appetite for risk while others believe restrictive definitions by prominent Islamic scholars on what constitutes Sukuk have made institutions more cautious,” Taneja said.

Whatever the reason, Sukuk are still being issued despite the uncertain markets, with most expecting these asset-based instruments to receive a lift, particular from governments. Standard & Poor’s, for example, expects total Sukuk issuance to reach $25 billion this year.

Sukuk structures and capital markets will come under examination at the Istanbul forum as well as emerging Takaful development; Islamic jurisprudence; alternative asset classes including private equity and real estate; and sustainability with the greening of Islamic finance.

A special session on Turkey at the crossroads will take place at the Istanbul forum which will also examine the status of Turkey's attempts to become a member of the European Union. The results of a study on the impact of politics on the underdevelopment of Islamic finance in Turkey will also be presented.