Islamic finance beats a tactical retreat
Although Islamic finance has performed better in Asia than in the Middle East, the sector faced one of its tougher years in 2010. The industry’s future is not secured yet, and the boasts of the boom years have been replaced by introspection and a focus on sustainability. Dominic O’Neill reports.
After Dubai’s difficulties, the fundamental problems facing Islamic finance have become apparent
BANKERS INVOLVED IN Islamic finance have become a more subdued bunch of late. After the sub-prime crisis they bragged about how the Shariah ban on interest and other Islamic prohibitions had shielded their businesses from toxic structured debt securities.
Then Lehman Brothers collapsed, bringing property and stock prices crashing down across the Middle East at the same time as a crunch in short-term liquidity throughout the Gulf. The culmination was the Dubai World debt standstill announcement in late 2009. Since then, the fundamental problems facing Islamic finance have been more evident than ever before. Far from being a safe haven, Islamic finance has been shown to have all the characteristics of a truly volatile frontier market.
"It’s been a tough year for everyone. After the gold rush of the mid-2000s, the industry as a whole has refocused on the longer term, and on making Islamic finance more mature, and less ambiguous from a Shariah perspective," says the head of Islamic finance at a global bank.