Malaysia banking with fervor on Islam<\/p>\n
Liau Y-Sing, Reuters, Kuala Lumpur<\/p>\n
Malaysia is banking on religion as the mainly Muslim Southeast
\nAsian nation embraces Islamic banking with fervor.<\/p>\n
Islamic financing, based on sharia law which disallows the
\npayment of interest in favor of profit-sharing, has found a
\nsurprisingly large following among Malaysia's 10 million non-
\nMuslims.<\/p>\n
About seven out of 10 Malaysians who opt for Islamic banking
\nare non-Muslims, a study by professional services firm Deloitte
\nshows.<\/p>\n
Islamic banking now accounts for a tenth of Malaysia's 780
\nbillion ringgit (US$205 billion) total banking assets. Modest as
\nthe share appears, it masks an average annual growth of 37
\npercent over the past two decades.<\/p>\n
Malaysia is a snapshot of a global trend in which a growing
\nnumber of governments, firms and consumers are raising funds
\nthrough sharia-compliant financing structures.<\/p>\n
Besides the more obvious candidates such as Qatar and Turkey,
\nnon-Muslim governments such as the Philippines are also
\nconsidering Islamic bond sales.<\/p>\n
To the mass market, the Islamic banking proposition is less
\nabout religious beliefs and more about economic sense.<\/p>\n
While Sharia law does not allow investments in alcohol, gaming
\nand pork-related industries, adherents say it is no less
\nprofitable than conventional investments.<\/p>\n
\"You can talk about Islamic everything but at the end of the
\nday, it's the bottom line (that) counts a lot. An Islamic banking
\nsystem has got to be a business proposition rather than a sharia
\nproposition,\" said Mustapha Hamat, chief executive officer of the
\nIslamic Banking and Finance Institute Malaysia, which runs
\ncourses in Islamic banking.<\/p>\n
Islamic bonds, for one, are rapidly gaining popularity. These
\nbonds pay no direct interest, which Muslims consider usury.
\nInstead they place the proceeds of borrowing in pooled
\ninvestments and make regular payments based on profits.<\/p>\n
An Islamic bond allows the issuer to tap a larger pool of
\nfunds, including money which can only be invested in sharia-
\napproved instruments.<\/p>\n
With investable funds in Islamic instruments valued at around
\n$180 billion in 2002 and growing by 15 percent a year, Islamic
\nfinancing becomes a very compelling proposition.<\/p>\n
Islamic bonds also offer an alternative to investors looking
\nbeyond the U.S. debt market. The recent slide in the dollar has
\nignited concerns that U.S. assets may be less attractive to
\nforeign institutions, which are huge holders of Treasury debt.<\/p>\n
For the consumer shopping for a housing loan, this brand of
\nfinancing offers certainty.<\/p>\n
An Islamic housing loan is based on a contract where the bank
\nbuys the property and sells it to the consumer at a premium. The
\ncustomer's monthly installments are fixed, as opposed to
\nconventional housing loans which depend on market lending rates.<\/p>\n
\"With a volatile market, the certainty is some attraction in
\nusing Islamic financing. People enter into commitments which they
\nare comfortable with,\" said David Vicary, Deloitte Director of
\nFinancial Services.<\/p>\n
But the growth of Islamic banking worldwide is being
\nchallenged by differing interpretations of sharia law.<\/p>\n
For example, what moderate Malaysia sees as sharia-compliant
\nis not necessarily viewed as such by more traditionalist Middle
\nEast scholars.<\/p>\n
Most of the Islamic bonds issued in Malaysia are based on the
\nprinciples of \"murabahah\" and \"al-bai bithaman ajil\". Under these
\nprinciples, the financier purchases an asset from the issuer and
\nsells it back to the same party at a premium -- a notion which
\nMiddle East scholars say is \"back-door\" interest.<\/p>\n
Malaysia's global Islamic debt offering last year -- the first
\nIslamic global bond -- was a middle ground of sorts.<\/p>\n
The bond, known as sukuk, was based on the \"ijarah\" concept
\nwhich is accepted by Middle East investors. The bond, which was
\nissued through a special purpose vehicle, involved the issuer's
\npurchase of the title to land parcels from a statutory agency and
\nthe subsequent leasing of the same land to the government, for
\nthe tenure of the bond.<\/p>",
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