HONG KONG (AP) Hong Kong’s financial secretary says he wants to launch a market for Islamic bonds and has ordered regulators to study how to reconcile Muslim financial rules with local laws.
John Tsang said in a speech at a financial conference Monday that major international banks and other financial centers have ventured into Islamic financing and Hong Kong needs to catch up.
“Islamic finance is an important element of the global financial system. For Hong Kong to be a major international financial center — not just in the region, but globally — then Islamic finance must be among our portfolio of products and services,” Tsang said, according to a transcript of the speech seen Tuesday.
Islamic finance is governed by Islamic law, or Shariah, which bans the collection of interest, trading in risk and investing in gambling, pork and alcohol businesses. Also, while conventional bonds are based on the legal relationship between borrowers and lenders, Islamic bonds are structured as business transactions. Instead of issuing interest, they revolve around rental payments and dividends.
Tsang said the international Islamic financial market is worth US$1 trillion (€720 billion) and is expected to grow 15 percent annually.
He said in an earlier newspaper column on the topic that more than 300 Islamic financial institutions in more than 75 countries hold assets of more than US$300 billion (€218 billion). Islamic business units of international banks manage an additional US$400 billion (€290 billion), he said.
Tsang said he hopes to promote Hong Kong, a popular stock market for Chinese companies, as a gateway for Middle Eastern investment in China.
The official said he visited Malaysia, a major center for Islamic bonds, last month to study its Islamic financial system.
Badlisyah Abdul Ghani, chief executive of Malaysia’s CIMB Islamic Bank, said it makes sense for Hong Kong to get into Islamic financing.
The global dollar-denominated Islamic bond market is worth US$24 billion (€17.4 billion), with Malaysia accounting for up to 70 percent of Islamic bonds worldwide, Badlisyah said.
“I think any financial center which has the infrastructure that Hong Kong has would be a good place to do Islamic bond issuance,” he told The Associated Press in a phone interview.
He said there is interest among Islamic companies to invest in China and to raise funds for themselves through Islamic bonds issued in Hong Kong.
Charles Li, a finance professor at the City University of Hong Kong, said Hong Kong authorities should be careful in handling differences between local financial norms and Islamic financial regulations.
“The government should study whether our laws are in conflict with Middle Eastern banking systems and laws. We can’t interpret our laws in favor of Islamic culture and practices,” he said.
Badlisyah said Hong Kong authorities should follow Malaysia and allow an Islamic bond market to coexist alongside a conventional bond market.