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80 per cent of private wealth in GCC invested outside the region

posted on 06/09/2006: 843 views

Sheikha Lubna Al Qasimi, Minister of Economy, yesterday said that as much as 80 per cent of the US$1.8 trillion of private wealth in the GCC is invested outside the region due to the lack of Islamic-friendly investment opportunities in Muslim countries.

"The Islamic banking and finance industry has as much as US$300 - 500 billion in assets under management and annual growth in excess of an estimated 15 per cent per annum," said Sheikha Lubna while giving a key note speech at the three-day, fourth annual Islamic Funds World.

She said that growth, it would appear, is only limited by the industry's need to duplicate Western or conventional financial methods. These statistics, whilst impressive, pale in significance when compared with the market opportunity in the UAE as a whole. Sheikha Lubna said that financial institutions in Islamic banking and finance sector are reporting growth at up to three figure percentage levels and above, year-on-year, with similar profit growth, which is pushing major international traditional institutions to form Sharia- compliant subsidiaries as fast as they can.

"They seem convinced this market segment offers them major growth opportunities that are few and far between in their normal areas of operation. Few countries can claim such growth, and even fewer industry sectors can claim such impressive acceptance and adoption," said Sheikha Lubna Al Qasimi. The minister said that traditionally, much of the local wealth was invested offshore in the rather more traditional financial centres of London and New York, because of the wide range and relative security of the available investment options, but also because of a lack of suitable local investment vehicles.

After the events of September 2001, a large amount of capital was repatriated to the UAE from the US and Europe, leading to a considerable pool of liquid capital channelled into the region and resulted in significant investments in different economic sectors in the UAE and in the real estate and infrastructure development.

In addition, many have found that there are now formal banking facilities and more (although not enough) Sharia-compliant investment options available to them, and the appreciable levels of profit they generate are making these options very attractive. Lauding the pivotal role of Dubai as a financial hub in Asia, She said that Dubai has taken the bold step of establishing a financial centre that competes on the global stage, along with London, New York, Singapore, Tokyo and even Shanghai, as the DIFC is perfectly positioned and slots into the time zone directly between East and West.

"It has become the final piece in the jigsaw of round-the-clock capital market operations with the commencement of operations of the Dubai International Financial Exchange. It was always envisioned that a large part of the DIFX's business would be in Sharia-compliant securities, and since opening, the DIFX has increasingly become a focal point for Sukuk listings, which would significantly increase over time," said Sheikha Lubna.

"The Islamic finance industry must take steps to demystify the business and standards required, and the basis upon which it has developed, to make Islamic banking and finance a well-understood and valid alternative to conventional banking," she said. (Khaleej Times)


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