Investment Pundit - by Islamic Finance Asia

Geert Bossuyt, CEO of Dar Al Istithmar, is well known among his peers as one of the pioneers of Islamic banking and finance in Europe, having headed up Deutsche Bank`s global Islamic business unit since 2006, as well as serving as the Dubai-based head of structuring for the MENA region.

In 2010 he joined Dar Al Istithmar; a prominent Shariah finance boutique based in London, Dubai, and Oxford, providing financial product innovation, Islamic liquidity facilitation, and Shariah compliant investment products.

In an exclusive interview with NAZNEEN HALIM, Bossuyt reveals his thoughts on how the current economic and political climate in the Middle East will affect the global Islamic finance industry, and what investment opportunities lie ahead for 2011.

How will the Islamic finance and banking sector be affected by the situation in Bahrain?

Bahrain is a major regional finance hub and is considered to be one of the key players in the Islamic finance space. Any business disruption will always have a direct impact on the financial services sector in the GCC and more particularly on the Islamic finance industry. However, I hope that this phase is temporary and things will be back to normal soon - at least in the short-term. Having said that, there may and probably will be some implications for Bahrain as an [Islamic] financial center, as institutions look for stable [political] environments to do business in, and Bahrain could have problems convincing those institutions that they can offer such an environment.

Which markets within the GCC, in your opinion, will directly gain from an influx of investors moving from Bahrain?

Well, looking cross border, UAE and Qatar are open for Islamic business and would welcome any additional business being routed to them; while as well some business now done in Bahrain, but related to Saudi Arabia, could flow back to Saudi Arabia - especially given the recent law developments within the Kingdom of Saudi Arabia. Having said that, I still believe it is far too early to comment on whether we will see some axis shift. The situation within the Middle East and North Africa is at this moment unclear and I would doubt that institutions will take quick decisions now.

Has the GCC economy as whole been affected by the current political situation? How have investors reacted, and do foreign financial institutions still see as many business opportunities in the Middle East?

The current political climate is indeed affecting the GCC as a whole, as it is directly impacting the [foreign] investors` perspective of the region. However, petro-dollars continue to pour into the region supporting the economies and financial industry. As such we see all-in-all limited economic impact. Since Bahrain has little or no oil revenue and they are directly impacted, the economic consequences will be higher for them.

What business opportunities are expected to be lost from this, or have already been lost?

Bahrain`s image as a leading financial center has been tarnished, not lost (it is too early to judge on that). Initiatives planned by the Bahraini government and Central Bank of Bahrain have been affected and delayed. No doubt, some business development projects by key players in the Islamic finance industry have also been set back, but this is not to suggest that these are gone. As mentioned previously, the business opportunities may have been transferred to the other players in the region - UAE, Qatar and Saudi.

Will there be a shift in investment interest? Is this likely to be within the GCC or to Southeast Asia?

The global crises have no doubt impacted and changed investment interest (more domestic, more risk-averse, simpler) and we see perhaps that impact being re-enforced by current political developments. However, we see little or no change in the deployment by GCC countries of their oil revenue.

Which Islamic finance sectors do you foresee growing in 2011?

As investors are risk-averse we expect them to continue investing in short to medium-term secured investments; not that different from what they have invested in over the last two years. I continue to believe Ijarah-based Sukuk will remain the preferred investment mechanism in the capital markets, and the Commodity Murabaha in the retail and interbank market. However, more and more people will question the liquidity of those instruments and look for alternatives. Pressure to increase profitability by investing into higher yielding instruments will increase during the year as the political instability decreases. That, along with the obvious need for diversification of assets (and banking revenues) will push the more daring, forward-looking Islamic banks into new areas such as Islamic investment banking, asset-backed financing and increased volume of corporate lending (loan to deposit ratio permitting).