The Challenges For Islamic Finance In Hong Kong

The Challenges For Islamic Finance in Hong Konghave been made to ensure that existing tax and
In my previous article, "How Does Shariahregulatory systems in the UK do not distort the
Compliance Work?"Visit heremarket for investors wishing to invest in those
 I touched upon the challenges that Hong Kong'stypes of products.
government faces when trying to implement theThe upshot of this pro-active and forward looking
required changes to establish a level playing fieldapproach by the UK government can be seen by
between traditional financial products and thethe results achieved so far. To-date, Islamic
alternatives presented by Islamic finance. Lookingproduct offerings in the UK include:
at the experience in the UK provides a useful• Five fully Shariah-compliant banks. An
example of the absolute potential and growth thisadditional 17 provide Shariah-compliant services
financial services niche offers.through "Islamic windows" whereby they can
The UK government made the establishment of aoffer expertise in Islamic finance to businesses
suitable fiscal and regulatory framework forand members of the public. This is more than any
Islamic finance in the UK a key focus in 2003.other non-Muslim country.
Since then the UK government has achieved the• The London Stock Exchange has listed a
following:total of 18 sukuk issues, which raised US$10bn.
• In 2003 it removed the double tax on IslamicThis is exceeded only by Dubai Nasdaq.
mortgages and extended the tax relief on Islamic• Of the total seven Shariah compliant
mortgages to companies as well as individuals.exchange traded funds, four were launched in
• As a financial centre, London became more2008 alone. Also, 2008 saw an additional two new
attractive to issue and trade sukuks, ie Islamicequity funds launched.
bonds, by reforming the arrangements for• In terms of non-banking products, the first
issuance of bonds so that returns and incomecompany to offer Shariah-compliant insurance,
payments could be treated as if they wereknown as takaful, to UK residents was authorised
interest.in 2008.
• The UK's financial services regulatory body,• Supporting this development of Islamic
the Financial Services Authority, introducedfinance are 18 law firms that provide Islamic
initiatives that ensured that the regulatoryfinance support. In addition, the Big Four
treatment of Islamic finance is consistent with itsprofessional service firms provide Islamic finance
overall statutory objectives and principles.advisory services.
The UK government even considered issuing• To provide educational support in excess of
Shariah-compliant bonds as well as offering50 institutions offer the necessary Islamic finance
Shariah-compliant retail banking products viaeducational and training products. This is
National Savings & Investments andsignificantly more than any other country
conducted a corresponding review. Although itworldwide.
announced in November 2008 that neitherThis is a tough act to follow for the Hong Kong
presently offers value for money, thegovernment. Not only will it have to compete with
government confirmed that it would monitor thethe solid legal and regulatory platform that the UK
situation closely. At the same time, the UKgovernment has provided, but the UK has a six
government decided to support the developmentyear head start. The UK has done an excellent
of Islamic finance whilst ensuring that conventionaljob in securing its position as the key western
and alternative finance are treated equally. Thecentre for Islamic finance. Given the potential for,
focus is thus on identifying existing marketin particular, East Asia, I would hope that the Hong
barriers and using legislation to ensure thatKong government is suitably motivated to make
Shariah-compliant products can be offered andthe necessary changes in the Hong Kong legal and
can compete on an equal footing with moreregulatory framework as well.
conventional forms of finance. Particular efforts