A Koran In One Hand, Dollars In the Other

An international conference on Islamic banking was held in Jakarta, Indonesia last month, drawing financial experts from Muslim countries in the Middle East and Southeast Asia.

Islamic banking refers to financial transactions that comply with Islamic law.

Baek Gyeong-ho, the president of Woori CS Asset Management, participated in the conference and said, “Muslim countries have a very good image of the Korean economy. Some experts say that the funds invested in Korean companies will sell well in the Islamic financial market.”

As oil money is gaining more power due to rising oil prices, the Islamic financial market is receiving attention in the international financial market as a new “blue ocean.” The development of the Islamic financial industry has slowed due to strict Islamic law, but the world is recognizing its potential as an investment outlet for oil money.

Islamic law has undermined financial industry development-

Due to Islamic law, which forbids interest, the financial industries of Muslim countries have not been fully developed.

Bonds issued by Muslim countries or corporations are called “Sukuk,” which are structured to return dividends rather than interest. Islamic law also bans investment in companies with any involvement in the trading or production of tobacco, alcohol, weapons, or pork.

However, Muslim countries have actively invested overseas through the Sovereign Wealth Fund recently as they do recognize the importance of the financial industry.

The total amount of oil money that has been put into the global finance market by the six oil-exporting countries of the Gulf Cooperation Council (GCC) from 2002 through 2006 amounted to 1.5 trillion dollars. During the same period, Middle Eastern countries invested 542 billion dollars overseas, including 3.2 billion dollars into the Korean stock market.

Islamic banking, which represents the financial interests of 1.8 billion Muslim, or 28% of the world’s population, has grown 15-20% annually. As of the end of last year, the total amount of Islamic financial assets was 750 billion dollars.

Domestic Financial Institutions Begin to Enter Muslim Countries-

As Muslim countries are actively investing overseas, global competition for Islamic capital is becoming ever fiercer. A financial company in Japan hired a mullah to issue Sukuk in Malaysia. Global financial institutions like Citigroup and HSBC have formed a team specifically dealing with Islamic markets.

Domestic securities companies, which have hardly ever had transactions with Islamic financial industries, are accelerating their entry into Malaysia, which is called a “hub of the Islamic financial market” because it has 56% of global Sukuk.

Good Morning Shinhan Securities has paved the way for Korean firms to enter the Islamic financial market by forging a strategic alliance with KIBB Securities last month. KIBB is Malaysia’s 4th largest securities company. Daewoo Securities and other securities companies are pushing ahead with cooperation with financial companies in Muslim countries as they analyze the market.

Kim Hyeok, the future strategy team chief of Good Morning Shinhan Securities, said, “There are plenty of business opportunities in the Islamic financial market, such as sales of Sukuk, project financing, and IPOs.”

sublime@donga.com