KUALA LUMPUR, 10 April 2007 — Asia is finally awakening to the potentially huge opportunities that the global Islamic finance sector is offering, with Japan and China emerging as the two potentially most important markets.

Bank Negara Malaysia and local Islamic banking sources confirmed that Japan Bank for International Cooperation (JBIC) is in the process of launching a “substantial” Sukuk (Islamic trust certificates) series out of Kuala Lumpur and denominated in Malaysian ringgit.

Tadashi Maeda, director general of JBIC, confirmed to Arab News in Malaysia in March that JBIC is embarking on “a proactive Sukuk issuance” strategy, which includes both issuance by the bank and through credit enhancement by JBIC through its guarantee, where Japanese private companies and their affiliates overseas issue Sukuk.

JBIC, which became an observer member of the Islamic Financial Services Board (IFSB) in January 2007 and which together with the IFSB organized the first-ever international Islamic finance conference in Tokyo in February, is also promoting Islamic finance in the Asia region through two initiatives — ABMI (Asian Bond Markets Initiative) and the AGI (Asia Gateway Initiative), both aimed toward helping the establishment of an integrated Islamic finance market in Asia, in which Japan would play a key role in promoting such a market and fostering a secondary market of Sukuk in Asia.

The aim is also to attract petrodollar investment from the GCC countries in strategic projects and infrastructure in Asian countries.

There have been reports that Japan may also launch its debut sovereign Sukuk this year. But Maeda believes this may be a bit too premature. Japanese financial institutions, unlike their British and US counterparts, have been slow to enter the Islamic finance market, although Nomura and Daiwa, and corporates such as Mitsubishi have either participated in Islamic syndications or accessed mainly Islamic commodity Murabaha financing in the past.

The Tokyo Marine Insurance Company has also been involved in Islamic insurance (Takaful) through a tie-up with AEIC in Saudi Arabia. More recently, Tokyo Marine, in a joint venture with Hong Leong Islamic Bank, received the fourth Takaful license issued by Bank Negara Malaysia to foreign-local joint ventures. According to Hong Leong Tokyo Marine Takaful CEO, A. Ayabe, the joint venture aims to capitalize on the huge regional Takaful market, which for various reasons has been virtually untapped.

JBIC, according to Maeda, established an in-house Islamic Finance Study Group in May 2006 and has even appointed its own Shariah Advisory Group.

After New York’s $13.311 billion, the Tokyo Stock Exchange is the largest in the world with a domestic market capitalization of about $4.573 billion, followed by London with $3.058 billion. The average daily foreign exchange transactions in Japan total $120 billion, overtaken only by the US with $167 billion and the UK with $291 billion, respectively.

Japan, together with China and South Korea, are the largest oil and petrochemicals export markets for GCC countries such as Saudi Arabia, Kuwait and Abu Dhabi. The GCC also imports huge amounts of manufactured goods, technology, consumer goods and IT products from these countries.

While Japan has the technical and marketing expertise to spearhead the two Islamic finance initiatives in Asia, there is no doubt that China is emerging as the brave new world for Islamic finance investment.

Shamil Bank of Bahrain, part of the Dar Al-Maal Al-Islami Group (DMI) headed by Saudi Prince Muhammed Al-Faisal, last year set up the first real estate Mudaraba in China with CITIC (China International Trading & Investment Corporation), a state-owned investment utility.

Several other Islamic financial institutions, including Gulf Finance House, Kuwati Finance House and Qatar Islamic Bank, have confirmed that they are looking at China seriously for various opportunities.

A major driver for business with China is its estimated 20 million to 50 million Muslim population. Add this to the 250 million or so Muslim population of ASEAN (the Association of South East Asian Nations); together with the combined 500 million or so Muslim population of India, Pakistan, Bangladesh, Sri Lanka and the surrounding small states, then the economic sense and business case for promoting Islamic finance in the region becomes apparent.

Last September, the $750 million Khazanah Musharaka Sukuk issued by Khazanah Nasional Berhad, the investment arm of Malaysian Finance Ministry, became the first to be listed on the Hong Kong Stock Exchange. Hong Kong and China are also Observer members of the IFSB, which sets the prudential and supervision standards for global Islamic finance.

Even the global index provider, Dow Jones Indexes, earlier this year launched the DJIM BRIC Equal Weighted Index, which measures the performance of companies in Brazil, Russia, India and offshore China that pass the Dow Jones Shariah-compliance screens. The DJIM BRIC Equal Weighted Index, said Michael A. Petronella, president of Dow Jones Indexes, is designed to serve as underlying for investment products such as mutual funds, exchange-traded funds (ETFs) and other investable products.

It offers market participants, according to Dow Jones, access to the performance “of the most sought-after emerging markets” and exposure to an investable Shariah-compliant index with a superior methodology.

The four countries — Brazil, Russia, India and offshore China — are equally weighted in the index, whose components are weighted by free-float market capitalization, subject to a 10 percent cap on the weight of any individual security.

Perhaps another sign of how Islamic finance is set to take China by storm, is the establishment of the Islamic Financial Services Institution (IFSI) in March by London Asia Capital plc, a merchant bank which is listed on AIM (alternative investment market in London).

IFSI, which will be headed by Abrahim Ma Maozong, a former chairman of the China Nationalities International Trust & Investment Corporation, is being set up by the Islamic Finance Division of London Asia, primarily as a credit guarantee company which will provide Islamic credit and guarantee services for companies in West China.

Its major shareholders will include London Asia Capital, Xinjiang Investment Corporation and management.