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SINGAPORE: Troubled times in the financial markets could mean boom time for Islamic finance.
Experts say the non-leveraged, asset-backed Islamic finance system makes it an attractive option for investors worldwide.
Investors who have lost their confidence in conventional financial markets may find the Islamic financing system more attractive.
Islamic financial institutions have emerged relatively unscathed from the recent financial turmoil.
Observers say this is due to the relatively conservative nature of the industry, which is based on the shariah or Islamic law.
And Islamic finance could be the vehicle that brings liquidity back to the markets, unlocking funds not just from the Middle East, but internationally as well.
"If you are unhappy with the conventional system, what happens is that you may be more inclined to listen to an alternative that seems more risk-averse, asset-backed, more secure... There is still liquidity, it's just that people are nervous putting it somewhere," said a senior partner at Praesidium LLP, Hari Bhambra.
But this does not mean that Islamic finance is set for unmitigated growth.
Different interpretations of how Islamic regulations should be understood have resulted in different standards for products across religious jurisdictions.
This has hampered the growth of the industry.
"It is an issue facing institutions and jurisdictions, and we need to at least try to standardise the operational components of Islamic finance. That is, we can't standardise the rulings but at least we can standardise the practice," said Bhambra.
And if this can be achieved, observers say that it would go a long way in making Islamic finance a competitive alternative to conventional financial systems.
- CNA/yt
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