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Shariah Banking in UK: more investors thanks to crisis

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Points of Essence:

  • The global credit crisis had investors turned to Islamic finance.
  • Islamic finance is an old-fashioned banking which is asset-backed and asset-based. It is not the infinitely leveraged model which is disaster-prone.

Stable and conservative Islamic finance is attracting investors scared off by the global credit crisis, the chief executive of new UK Islamic bank Gatehouse said.

Islamic finance, which bans the payment of interest and restricts the use of some derivative instruments, has been growing rapidly in the past few years.

Islamic assets total around $1 trillion, the Asian Development Bank estimates, with annual growth of 10 to 15 percent a year.

Islamic bonds, or sukuk, are structured as profit-sharing or rental agreements which are underpinned by physical assets.

The lack of exposure to some of the riskier markets of which investors have fallen foul in the past year makes Islamic finance attractive, and not just to those investors requiring Islamic sharia-compliant transactions, Gatehouse CEO David Testa told Reuters in an interview.

“It’s actually quite old-fashioned banking. It’s asset-backed and asset-based, it’s not the infinitely leveraged model. It’s a good story in these stricken times.”

Gatehouse, a subsidiary of the Securities House of Kuwait, started operating in April and says it is the fifth Islamic bank to open in the UK, which market participants say has taken the lead in Europe in welcoming Islamic banking.

Note: View related report here.

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Written by Suapi Shaffaii

July 30, 2008 at 3:07 am

Posted in General Issue

Tagged with ,

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