Hong Kong has yet to make its mark on the Islamic finance sector, with limited interest from industry practitioners. However, taking a page out of Malaysia in terms of education and training could provide new impetus to the sector. Amirullah Haji Abdullah discusses.
The global financial crisis of 2008 to 2009 and the European debt crisis have brought to the forefront wide-ranging issues concerning the stability and soundness of the global financial system. The world is still reeling from the damage caused by so-called conventional instruments. This has prompted an extensive re-examination by the international community of the need for the regulatory reforms and the adequacy of the existing international financial architecture, in search of a more sustainable solution. Islamic finance is the panacea. The way forward is to provide a dynamic Islamic finance business model that is both effective and efficient in achieving financial and social objectives.
Hong Kong, despite being a leading global financial centre, has yet to make any serious headway in this sector. While HSBC Amanah and Standard Chartered Saadiq operate Islamic banking arms, they do not yet have Islamic branches in Hong Kong. A simple chat with those in the industry reveals a lack of awareness or interest in Islamic banking and finance products and services.
So perhaps Hong Kong may not have a current market for financial services of this nature. However, in a borderless world, the Hong Kong authorities should look beyond their shores. Neighbouring China is a potentially vast future market for Islamic assets, financial services and instruments. Hong Kong is a natural fit to provide these. Hong Kong and Asia overall will be a captive market for Islamic finance professionals.
The Hong Kong Monetary Authority has begun to realise the fact that Islamic banking is here to stay. It is thought that there will be likely amendments of the financial laws of Hong Kong, allowing for five types of Islamic bonds (sukuk) to be introduced. Japan and China have already been moving in this direction for some time. But is sukuk the only area in which we are moving forward?
In the 2007 Policy Address, the Hong Kong government gave direction to transform Hong Kong into a vibrant centre for Islamic finance, starting with the Islamic bond market. In 2011, the financial secretary of Hong Kong again recommended this direction. The Hong Kong Monetary Authority has said it will grant tax exemptions for sukuk on a case-by-case basis before the regulations are ready. Since then, the government has been working on amending the tax laws for Islamic banking and finance.
Awareness of Islamic banking and finance is low in Hong Kong, and the knowledge level is also low. Many practitioners and investors are not aware that Islamic banking and finance transactions are backed by tangible assets and therefore offer a relatively safer avenue of investment. Further, that Islamic banking and finance is not limited to only Muslims, but is open to investors from all walks of life regardless of their religious faith.
Finance professionals do not know the difference between Islamic finance and conventional investment products, not to mention understanding the respective regulatory frameworks, Shariah compliance, share risk concepts and so on. In the investment market, investors predominantly invest in conventional products because of lack of knowledge and availability of Islamic products.
However, Islamic finance is increasingly an important and integral component of the global financial system and as such Hong Kong must move towards developing this sector.
Malaysia is a net exporter of knowledge workers and initiatives such as the Islamic Banking and Finance Institute of Malaysia (IBFIM), the International Center of Excellence on Islamic Finance (INCEIF) and the Malaysian International Islamic Financial Center (MIFC) provide a platform for new entities specialising in the area of skills, training and education to participate in Islamic banking and finance.
Already, Islamic banking and finance professionals are serving in major international financial institutions. However, currently the majority of these are Shariah scholars rather than industry practitioners. It is also hoped that, in the not too distant future, Hong Kong will become a net exporter of financial expertise in Islamic banking and finance.
Amirullah Haji Abdullah is the advisor of Islamic banking and finance at NOVA Training and Education Institute, Hong Kong
This article first appeared in Islamic Finance News (13 November 2012, Volume 9, Issue 45, Page 15). For more information, please visit www.islamicfinancenews.com.