Islamic Finance Poised For Recovery
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Global financial recovery is boosting the near-term outlook for Islamic banking and investment, a niche whose rapid growth took a breather last year. That bodes well both for experienced Islamic-finance professionals and conventional bankers who seek to broaden their skills and client base.
In the Arab Gulf—the current center of gravity for Islamic finance—confidence is returning after a prolonged lull brought on by the world financial crisis. The mood in the region is noticeably better than it was even two months ago, remarks Eric Meyer, chief executive of Shariah Capital, a New Canaan, Conn., firm that partners with banks and other institutions to create hedge fund products for Islamic investors.
“Through most of this year, people were just watching and waiting,” Meyer tells eFinancialCareers News. “Now, there’s a shift towards willingness to make decisions, to invest anew.”
Islamic finance embraces a plethora of instruments structured to satisfy the Quran’s prohibition on paying or receiving interest, selling borrowed or notional assets, or selling forbidden products that include pork or alcoholic beverages. They’re designed by financial professionals in concert with Muslim scholars who can certify that a deal conforms with Shariah, the body of law based on the Quran.
Where the Jobs Are
While the biggest U.S. and European banks both sell and invest in Islamic finance products, most related jobs are situated in the Middle East and Asia, close to the customer base. Despite efforts by the UK and more recently France to appeal to Muslim investors, the niche remains tiny in the West. Within the U.S., Islamic finance jobs are concentrated in sales and distribution, says Monem Salam, director of Islamic investing at Saturna Capital, a Seattle-area firm that manages and markets Islamic mutual funds to U.S. investors.
Avoiding explicit exposure to credit and derivatives helped Islamic institutions and investments weather the financial crisis that began in late 2007. But when global investors in general pulled in their horns, the demand for Shariah-compliant products felt the sting too. A recession-driven pullback in oil wealth exacerbated the impact.
Now, the tide appears to be turning. One recent sign: In the third quarter, global issuance of Islamic bonds known as sukuk climbed to $6.2 billion, up 15 percent from the second quarter and 82 percent from a year earlier.
“It’s a growing industry, and there isn’t enough homegrown talent for the growth of all these businesses being set up,” says Meyer. This month, Shariah Capital’s head of marketing is forging ties with Gulf-based Islamic finance institutions that were capitalized in the past year. Many people he’s meeting there are “conventional bankers who came out of Merrill or Citi.”
Meyer names private banking/wealth management and structured products as skill sets readily transferable to the Islamic banking context. Besides relocating and targeting institutions that need your expertise, “brushing up on your Arabic is not a bad idea,” he advises. He also suggests that openness to “be more of an entrepreneur” may help an aspiring Shariah banker, since many opportunities exist within smaller firms.
Eastward Shift Predicted
Naturally, up-and-coming institutions are also recruiting established Shariah finance pros away from rivals. “There is a lot of poaching between different firms," says Salam. “For a person who gets educated in this area and is looking for opportunities, there is a lot of inter-regional poaching as well.”
Salam predicts growth in Islamic finance business and employment will eventually shift from the Middle East to South Asia and Southeast Asia, simply because more Muslims reside in those regions than in the less-populated Middle East. In Asia, Malaysia’s government is the most dynamic in creating products, companies and jobs around Islamic finance principles, he says. One of the first and largest issuers of sukuk bonds, Malaysia has been more effective than other governments in helping new Islamic finance ventures get up and running, according to Salam.
In the U.S., Shariah-compliant mutual funds have been around for many years, and the first compliant exchange-traded fund began trading this past June. It’s run by Javelin Investment Management in Princeton, NJ. Another Islamic ETF is expected early in 2010, from Florentez Investment Management of Irvine, Calif. A handful of retail banks offer Shariah financing for consumers and small businesses. But Salam says opportunities associated with Islamic finance in the U.S. are quite limited and little growth is evident.
--Jon Jacobs, eFinancialCareers