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    A Primer: Islamic Investment Banking
    A Primer: Islamic Investment Banking
    A Primer: Islamic Investment Banking
    Ebook115 pages1 hour

    A Primer: Islamic Investment Banking

    By Paul McNamara

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    About this ebook

    A Primer: Islamic Investment Banking gives readers an accurate insight into many aspects of day-to-day Shari’ah compliant investment banking. Based on empirical research undertaken in 2009, the book gives a valuable overview of the growth of a very dynamic industry after the onset of the global financial crisis. Individual chapters look at Islamic private equity, Islamic venture capital, Islamic mergers and acquisitions, Islamic syndicated lending, Islamic real estate investing, Islamic wealth and asset management, Islamic funds management, Islamic capital markets, Islamic treasury liquidity management and Islamic trade finance. The book is written for readers with some familiarity with investment and banking terminology.

    LanguageEnglish
    PublisherPaul McNamara
    Release dateJun 23, 2014
    ISBN9781310537820
    A Primer: Islamic Investment Banking
    Author

    Paul McNamara

    Paul McNamara is an editor and journalist with over 20 years’ experience. His career includes spells with the Financial Times, Euromoney, BRW Media, Asia-Inc, Private Equity & Hedge Funds Middle East and Banker Middle East. He has a specialization in Islamic finance, the Middle East banking and finance industry, GCC capital markets, wealth management and the world of interest rate securities.

    Read more from Paul Mc Namara

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      Book preview

      A Primer - Paul McNamara

      A Primer: Islamic Investment Banking

      By

      Paul McNamara

      Copyright Paul McNamara

      Published by Eaglemont Media

      Smashwords Edition

      Contents

      Introduction

      Islamic private equity

      Islamic venture capital

      Islamic mergers and acquisitions

      Islamic syndicated lending

      Islamic real estate investing

      Islamic wealth and asset management

      Islamic funds management

      Islamic capital markets

      Islamic treasury liquidity management

      Islamic trade finance

      Conclusion

      About the author

      Chapter 1. Introduction

      The only way is up

      Much of the research work that was undertaken to produce this report on Islamic investment banking was undertaken in 2009 and paints a picture of an industry that was recovering from the severe battering that the financial world as a whole took in the aftermath of the global financial crisis.

      At that time the Islamic finance industry as a whole was on a tremendous growth path that looked like it was about to come off the rails because of extrinsic shocks from the conventional world. Like other sectors, the industry hunkered down until the worst of the financial tsunami was over. What no one could have predicted at the time was that the US economy would go into freefall, that the Federal Reserve would pump trillions of dollars of free money into the economy to get it all back on track.

      By mid-2014 the Fed was still quantitative easing, although its monthly bond purchases had been scaled back and should be phased out by October 2014. The Eurozone had introduced negative interest rates and global interest rates were at the lowest they have been in decades.

      The Islamic investment banking industry, however, does not look too dissimilar to the way it did in 2009 although it has grown in scale during that time. Perhaps the saddest development is that a number of senior Islamic investment bankers have given up the game and left the industry for one reason or another.

      What remains in little doubt is that the industry is still short of enough good talent to go around.

      Some leading Islamic investment banks have gone to the wall in the meantime and some new kids have arrived on the block.

      The real engine for growth of the industry remains the GCC although other centres have not given up trying. In the wake of the global financial crisis, Islamic finance has gathered momentum with Shari’ah compliant principles.

      The origins of the Islamic finance industry are rooted in the recent past, 1975 to be precise, with the creation of Dubai Islamic Bank in the United Arab Emirates. It was the brainchild of visionary businessman Haj Saeed Ahmed Lootah, who convinced the then emir of Dubai, Sheikh Rashid bin Saeed Al Maktoum, that a new form of finance was needed.

      But it is a financial system that is deeply tied to the basic tenets of Islam, going back hundreds of years. Unlike conventional finance, Islamic finance prohibits all forms of interest, as well as investments in industries such as gambling, pork, pornography, alcohol and drugs.

      Essential concepts in Islamic finance, such as the ban on usury and speculation, are rooted in the very early days of the religion. The belief that parties should deal with each other equitably and without exploitation was as strong then as it is now.

      According to the theory, Islamic finance would serve as a pure economic system that would see people treat each other like respected brothers rather than as gullible consumers to be exploited, a common criticism of conventional finance today. Essential concepts in Islamic finance, such as the ban on usury and speculation, are rooted in the very early days of the religion.

      Estimates vary on its true size. A recent report by Ernst & Young suggests that growth of Islamic financial holdings will slow in 2013 to 11 per cent or $1.8 trillion. That is down from an average annual growth of 19 per cent over the past four years. Still, supporters believe that the financial crisis highlighted the failings of the conventional system, leading to more interest in Islamic finance.

      From its early days in Dubai, the Islamic retail banking industry grew slowly throughout the Gulf Co-operation Council states and parts of North Africa. It emerged in other Muslim-majority countries, including Malaysia, Indonesia, Brunei and Pakistan. Islamic retail finance offerings can now be found in most countries, even China, North America and the UK.

      As Islamic retail finance grew, so did Islamic investment, or wholesale, banking, with Bahrain serving as a hub. The twin body blows of the global financial crisis and the Arab Spring, however, forced a re-evaluation of the previous business model, which relied heavily on real estate or property as an asset class. The private equity model also took a beating as the cost of borrowing rose in the face of spiralling global risk profiles and debt defaults.

      It is in the sphere of Islamic investment banking that the UK has had greatest success in asserting itself as a serious contender for the crown of leading Islamic finance centre of the world. Bank of London and the Middle East jostles with Gatehouse Bank; QIB UK survives alongside European Islamic Investment Bank. And many global investment banks, such as Deutsche Bank, Goldman Sachs and Standard Chartered have dabbled in Shari’ah-compliant business.

      London recently launched a campaign to promote itself as an international hub for Islamic finance. But it faces significant global challengers. Malaysia dominates the Sukuk, market and NASDAQ Dubai has avowed its aim of becoming the global platform for the trading of Islamic securities.

      Elsewhere in the world, Islamic finance is putting down new, stronger and deeper roots in places as far flung as Azerbaijan, Kazakhstan, Nigeria and South Africa, as well as less predictable jurisdictions such as Australia and Japan.

      The fillip the industry hoped for, as investors and savers in the west showed an increasing dislike of conventional banking fat cats, has not yet materialised, but nevertheless it has grown apace. Discontent is on the rise among western banking customers faced with abuses such as Libor rigging, mis-selling of financial products, hidden trading losses and sloppy anti-money laundering.

      As the conventional financial system takes blows to its credibility, the question arises whether there is a better financial system waiting to be found.

      Many believe the answer lies in some form of ethical finance with a philosophy that is underpinned by moral tenets or religious beliefs. While Islamic finance scores highest in this area in terms of the number of headlines it secures, other religious groups can find themselves in lockstep with these same views.

      Ethical finance encompasses a wide range of issues from sustainability to firearms, exploitation of people and resources to environmental concerns. Investors who require an ethical overlay to their money management want to look after the world they live in and this can mean investing in companies which have business models that are sustainable in an ecological, social, economic and political way.

      Islamic finance, through its investment filters, provides one means of doing so. In 2009, the Vatican’s official voice piece, the newspaper L’Osservatore Romano, came out in favour of Shari’ah financing saying: The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service.

      Other religious groups can find themselves in lockstep with these same views. In the UK, there has been a push towards ethical finance. Campaigns, such as Move Your Money, launched last year urging consumers to shift funds from mainstream banks to ethical alternatives.

      For ethical finance to take

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