Despite the progress of Singapore, Indonesia, Hong Kong and Korea, Japan currently fails to fully embrace Islamic finance – one of the world’s fastest growing financial sectors.
According to Esuaki Yoshida, deputy head, Africa and the Middle East, at the Japan Bank for International Cooperation (JBIC), one of the reasons for the country’s lagging progress is Japan’s market environment. The Muslim population in Japan numbers only 10 000, whereas a non-Islamic industry leader such as the UK boasts about 2 million Muslim residents. Moreover, Yoshida explains that historically, Japan does not have strong ties with the Middle East; there are currently no Middle Eastern bank branches in the country.
"Islamic finance is difficult for the Japanese," Yoshida said last week during a Sukuk conference in London. "Japan is isolated from international communities, and there are unique language and cultural barriers.
Nonetheless, Japanese banks and corporates have been active in Islamic finance as fund managers for Islamic equity funds for a long time. Mitsubishi and Mitsui, for instance, have been involved in raising Islamic facilities through London for almost 20 years, and insurance company Tokio Marine & Fire Company is one of the most active non-Muslim companies involved in Takaful.
But despite Japan’s slow progress, some positive steps have been taken recently to further the country’s Islamic finance activity.
In December, the Financial Services Agency of Japan amended banking regulations. The subsidiaries of Japanese banks are now permitted to be involved in Islamic financial transactions. Yoshida claims that the amendment has had positive results. SMBC Europe (London) and Bank of Tokyo-Mitsubishi UFJ (Malaysia) have set up a team to structure and place Islamic deals, and 10 Japanese firms are already members of the Islamic Financial Services Board (IFSB) which sets standards for global Islamic finance.
Furthermore, on 22 January a seminar on Islamic finance was held in Tokyo, jointly hosted by Islamic Financial Services Board (IFSB) and JBIC. This marked the first-ever international event on Islamic finance in the country. The number of attendees was originally expected to be around 150, but eventually more than 250 took part.
Japan still has a long way to go, as Murabaha and Ijarah financing involving asset trading are not permitted by Japanese law. Other issues surrounding Sukuk also need to be resolved. This said, with policy measures and the involvement of private institutions, including the commitment from JBIC, Japan may develop and mature its Islamic finance sector.
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