State Street new report on Islamic finance

Report spotlights trends in Islamic finance and the reasons for its growing popularity, Says, “The tenets of Islamic finance - lower leverage, transparency and no speculation - make it an attractive investment option in any market environment, especially today's.”

State Street has released what it calls its Vision Report on Islamic Finance, citing a market that is growing by as much as 20 per cent a year since 2003. The seventh paper in State Street's series of Vision Reports estimates that total assets under management by Islamic financial institutions now exceeds $600 billion.

Rod Ringrow, Senior Vice President of State Street based in Doha, Qatar said, "Against a backdrop of a challenging global environment, Islamic finance is emerging as a competitive form of intermediation in the international financial system and it has a key role to play in restoring confidence in the markets.  Opening the door to additional forms of investing, particularly ones that emphasise the sharing of risk and reward, will certainly help to facilitate this goal."

State Street says that the Islamic finance industry has become a growing option for investors and a competitive form of financing for commercial enterprises.  It is also allowing for the further diversification of risks and is contributing to an efficient international allocation of resources across borders.

While the selection of products at large Islamic financial institutions remains relatively narrow, some newly created Shari’ah-compliant instruments are beginning to rival those of conventional banks.  The principles of Shari’ah, the moral and legal code that governs the industry's development, impacts the underlying structure of its products and services, and ultimately serves as one its biggest selling points to investors. 

At its core, Shari’ah specifies that money has no intrinsic value of its own and should be used as a tool for measuring the value of assets.  On the deposit side, these instruments include profit sharing investment accounts (PSIAs), which give depositors the right to share in Islamic banks' profits and losses.  In addition, several money market, equity, real estate, private equity and infrastructure funds are now being offered.

Ringrow added, "To date, the global financial crisis has had a limited direct effect on Islamic finance as investors seek out asset classes and markets they hope will provide stability. The tenets of Islamic finance - lower leverage, transparency and no speculation - make it an attractive investment option in any market environment, especially today's.  In fact, demand for Islamic finance products and services in the global market may be exceeding current availability.  Islamic finance will attract an increasingly global group of investors in the years ahead, and we believe the industry as a whole will respond with new products that will offer greater variety and sophistication for a host of complex, cross-border transactions."     

Link: http://www.cpifinancial.net/v2/News.aspx?v=1&aid=2334&sec=Islamic%20Finance