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BANKING

Banks take the next step in Islamic finance structures

Islamic finance is a natural home for structural innovation. Even the most basic Shariah-compliant products necessarily involve some degree of structuring: finding methods to mimic the economic benefits of conventional financial products while maintaining a religiously acceptable asset base. Now, though, banks are taking this structuring a step further. Chris Wright reports.

INCREASINGLY, INSTITUTIONS DEVELOPING Shariah-compliant financial products are bringing sophistication and smart thinking to bear in their development of new products, whether for the individual retail investor or the corporate client. The challenge is in convincing the end investor that it’s legitimate to do so.

For the individual investor, the growth area is capital-protected products. For Middle Eastern investors bruised by choppy local stock markets, it’s understandable that there is a yearning for security.

HSBC, for example, launched its first Shariah-compliant capital-protected products four years ago and has built them based on different markets, for example, global equities or regional equities, and even specific sectors (a recent product focused on healthcare stocks).

Deutsche Bank sells an Islamic money market product, linked to the portfolio of a short-term dollar bond fund, with capital protection, and has built bespoke products with exposure to asset classes as diverse as gold, foreign currency pairs and Saudi Arabian equities. UBS sells capital protected structures linked to equities and commodities. And in Malaysia capital protection is the norm. “You won’t see a structured product, Islamic or conventional, available now that doesn’t have capital protection,” says Badlisyah Abdul Ghani, head of CIMB Islamic in Kuala Lumpur.

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