Is the Arab Revolution good for Islamic Finance?zulkiflihasan
Gadhafi’s exit to spur Libya’s Shariah banking
By Bloomberg News Available at: http://www.dailyherald.com/article/20110828/business/708289949/
Islamic banking in Libya, where rebels stormed the capital Tripoli this week, may benefit from the departure of Moammar Gadhafi, who stifled the industry’s growth, a former central bank chief said.
Gadhafi, who ruled Libya for more than 40 years, rejected proposals to develop the banking industry “without giving reasons,” said Farhat Bengdara, 45, who was central bank governor until he fled the country in February. The regulator awarded Doha-based Qatar Islamic Bank the only license to operate a Shariah-compliant bank a month before the start of the fighting. The country’s secular banks provide Islamic services.
Revolts that toppled leaders in Tunisia and Egypt and sparked uprisings in Syria and Yemen may help boost Islamic banking as regimes that blocked the industry’s growth are removed, according to Raza Agha, Middle East and Africa economist at Royal Bank of Scotland Group Plc. Egypt’s Muslim Brotherhood, which was banned under ousted president Hosni Mubarak’s rule, will push the government to sell Islamic bonds. Libya, where almost all of the 6.6 million people are Muslim, has no stand-alone Islamic banks.
“I allowed banks to open Islamic windows with separate balance sheets when I was governor,” Bengdara said in an interview in Bloomberg’s Dubai office on Aug. 22. “Everything we did, we did gradually because the political decision-makers were against this. Gadhafi said ‘If we call them Islamic banks, so what about the banks we have? Are they infidel banks?’”
The $1 trillion global Islamic finance industry, which provides financial services and products that comply with the religion’s ban on interest and speculation, offers an alternative market to tap funding, Agha said.
“If Gadhafi is toppled, and if there is a need, any future government could well try and tap that liquidity as well,” Agha said by email on Aug. 23. “There is no reason why Islamic finance could not prosper under a more representative government in Tripoli, although it seems we are still some way from that.”
The uprising in Libya, which has the largest proven oil reserves of any African country, began in February and spread from the eastern rebel stronghold in Benghazi. Libyan rebels stormed Qaddafi’s compound in Tripoli yesterday after battling loyalist forces for control of the capital in a third day of fighting.
Gadhafi, who vowed to “never to give up” in an Aug. 21 audio broadcast, remains at large.
The “era of Gadhafi is over,” Mustafa Abdel Jalil, the head of the rebel National Transitional Council, told reporters on Aug. 22 at a news conference in the eastern Libyan city of Benghazi.
Even as the fighting continues, rebel and western leaders are looking ahead to a transition of power. U.S. President Barack Obama said on Aug. 22 that “the Gadhafi regime is coming to an end, and the future of Libya is in the hands of its people.”
“There’s a lot of money in Libya, there’s a lot of interest in Islamic banking coming from the Muslims there,” Nida Raza, senior vice president of capital markets at Unicorn Investment Bank BSC, said in a phone interview on Aug. 23 from Manama, Bahrain. “Before the uprising, the government was starting to work on getting the industry off the ground.”
Global sales of sukuk have jumped 71 percent to $16.8 billion in 2011 from the year-earlier period, according to data compiled by Bloomberg.
The average yield on emerging-market sukuk dropped eight basis points, or 0.08 percentage point, this month to 3.57 percent yesterday, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The debt returned 6.6 percent in 2011, the data show.
Bonds in developing markets rose 6.8 percent this year, JPMorgan Chase & Co.’s EMBI Global Composite Index shows. The Bloomberg Malaysian Sukuk Ex-MYR Index, which measures foreign- currency Islamic debt sold by companies and governments in Malaysia, climbed 6.6 percent in the period. The yield on the Dubai government’s 6.396 percent sukuk maturing in November 2014 jumped 15 basis points so far this month to 4.69 percent. The extra yield investors demand to hold Dubai’s bonds over Malaysia’s 3.928 percent sukuk maturing June 2015 widened 28 basis points this month to 236, according to data compiled by Bloomberg.
The U.S. backed rulers such as Mubarak in Egypt partly because they promised a bulwark against radical Islam. New governments in countries such as Tunisia and Egypt, which previously banned Islamic parties, may facilitate the development of a local Shariah-compliant banking industry, Agha at Royal Bank of Scotland said. “Syria, Tunisia and Egypt have had a long history of repressing Islamic parties,” Agha said. “A part of how incumbents sustained themselves internationally was by projecting themselves as secular governments. Libya is somewhat different because it appears a lot more tribal than Egypt or Tunisia.”
Libya’s economy suffered as much as $15 billion in damages during the conflict, according to former central bank chief Bengdara’s estimates. Oil output from Libya dropped to 100,000 barrels a day in July, down from the 1.6 million barrels pumped before the uprising started, a Bloomberg News survey showed.
The nation’s oil production will recover more quickly than forecast after the “sudden takeover” of fields and export facilities by rebels, Goldman Sachs Group Inc. said in a report on Aug. 22. The country will probably boost supply to 585,000 barrels a day in the next 12 to 18 months, according to Goldman.
About 70 percent of Libya’s nominal gross domestic product is made up of hydrocarbon revenue, Royal Bank of Scotland’s Agha said. The economy grew 4.16 percent last year after contracting 2.3 percent in 2009, according to the International Monetary Fund. The Washington-based IMF doesn’t have a Libyan growth forecast for 2011.
“There is a huge opportunity for Islamic banking,” Bengdara said. “The Libyans are conservative and many of them don’t like dealing with interest so having full-fledged Islamic banks will be very attractive to them.” Qatar Islamic Bank declined to respond to calls through its public relations agency yesterday about the full-fledged Islamic banking license in Libya. The Persian Gulf nation’s biggest Islamic lender was to own a 49 percent stake in the bank, while 51 percent was to be sold on the Libyan Stock Exchange, Bengdara said. The challenge is “getting a stable government in place, and working on the regulations for Shariah-compliant banking, which will take time,” Unicorn’s Raza said.