http://www.moneycontrol.com/news/world-news/islamic-finance-faces-political-hurdlesus_491204.html
*Islamic finance faces political hurdles in US*
Published on Thu, Oct 14, 2010 at 10:02 | Updated at Fri, Oct 15, 2010 at
10:39 | Source : Reuters
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*From Australia to Britain and even France, which recently banned the
face-veil, Western economies are adjusting their laws to encourage growth in
the Islamic finance sector they hope will attract wealthy Gulf investors.*
*Enthusiasm in the United States has been tempered by politics, however,
which could slow the growth of Islamic finance and push business from the
oil exporting Gulf elsewhere.*
*Islamic finance has faced scrutiny in the United States, with critics
suggesting the $1 trillion industry was a front to funnel funds to
terrorists or a plot by Muslims to spread a system of Islamic principles
known as sharia, which includes a ban on interest.*
*The Center for Security Policy, a US think tank, last month issued a report
titled "Sharia: The Threat to America", which said that practices promoting
sharia were "incompatible with the constitution" and should be "proscribed."
The report was presented on Capitol Hill and endorsed by some Republicans.*
*Former Speaker of the House of Representatives Newt Gingrich has also been
busy on the speaking circuit, calling for a federal law to ensure sharia,
and sharia-compliant finance by extension, is not recognised by any U.S.
court.*
*"If there's a choice, and the return and risk analysis is comparable but
one place is opening their arms to Muslims while politicians in another
country are making them feel unwelcome, of course Muslims will go to the
jurisdiction that is more welcoming," said Jawad Ali, managing partner and
deputy global head of Islamic finance at King & Spalding. *
*Favourable investment destination*
*Traditionally, the United States has been a favourable investment
destination for Middle Eastern investors and Ali says there is still much to
recommend it.*
*For one thing, the current US tax regime is conducive to the growth of
sharia-compliant structured finance. And most Gulf Arab currencies are tied
to the dollar, in which their oil exports are priced, which eliminates the
significant currency risk involved in doing business across continents.*
*But the growing political rhetoric in the United States could persuade some
investors to delay their decisions.*
*"Investors aren't running away from the United States just yet but I have
seen a number of potential investors from the region reconsider
sharia-compliant investments they were about to make because they're wary of
the climate," one Gulf-based Islamic banker said.*
*Another Islamic banker said discussions with a U.S.-based firm to raise
financing through an Islamic bond, or sukuk, fell through earlier this year
after the client feared controversy. The firm is considering a conventional
bond instead.*
*Britian had its first Islamic bond launch in August, when International
Innovative Technologies raised financing through a USD 10 million sukuk
deal. But the size of that bond still pales in comparison to General
Electric's USD 500 million Islamic bond last year -- the first sukuk ever
from a major US company.*
*In reality, any negative rhetoric surrounding Islamic finance is unlikely
to harm the Middle East economically.*
*U.S. firms have been actively investing in the Middle East this year and
when deals require Islamic financing, US corporations have been happy to
comply.*
*With US and European recovery prospects uncertain, Western companies and
funds are still looking to the higher returns on offer in growing emerging
markets, and that includes the Gulf.*
*Politicisation *
*What the negative sentiment has done is dampen some of the momentum for the
growth of Islamic finance services in the United States, which is home to
between 5 and 7 million Muslims.*
*According to a Pew Research study, 41% of American Muslims make over
$50,000 a year. There are about 20 financial institutions that offer Islamic
products, such as mortgages and private equity investments, but no fully
Islamic banks.*
*Observant British Muslims, by comparison, are served by the Islamic Bank of
Britain.*
*"There's a lot of people that don't know anything about Islam and Muslim
countries have done very little to educate the American people," James
Abourezk, a former Senator and the first Arab-American to serve in the U.S.
Senate, said.*
*To that end, the U.S. Federal Reserve has launched an Islamic finance study
group and is seeking consultants within the Islamic finance industry.*
*The U.S. Treasury has launched the Islamic Finance 101 programme to teach
government agencies about sharia-compliant business. The programme is run
with Harvard's Islamic Finance Project, which was created in 1995 to study
Islamic finance from a legal perspective and foster collaboration among
scholars inside and outside the Muslim world.*
*But these initiatives have also been politicised.*
*A column in the Washington Times was accompanied by a cartoon of Supreme
Court nominee Elena Kagan with a turban on her head, admonishing her for
"enabling of the penetration of sharia into our capital markets" by
supporting Harvard's Islamic finance project when she was dean of the law
school.*
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