By Arno Maierbrugger/Gulf Times Correspondent /Bangkok
Islamic finance is increasingly making inroads into the US in a variety of forms, but widely out of the radar of the broader public. In the recent past, there has been a rise in the number of Islamic financial service providers and institutions that range from small cooperative banks in communities to mortgage companies to investment banks and brokers operating countrywide.
There are now about three dozen official Islamic finance providers in the US. Among the top institutions offering Islamic financial services in the country in terms of asset size are Lariba American Finance House and the associated Bank of Whittier in Los Angeles, as well as University Bank and its subsidiary University Islamic Financial in Michigan.
Washington state-based Saturna Capital is an investment advisor and fund management company that manages more than $3.5bn in assets, mainly invested into Shariah-compliant mutual funds, and JP Morgan and Standard Chartered are offering Islamic banking services to clients.
In terms of skills training, Harvard University has an Harvard Islamic Finance Program and Palo Alto-based Franco-American Alliance for Islamic Finance is organising Islamic finance seminars in the US beginning with Chicago and San Francisco this summer. Some other universities and business school s also have Islamic finance seminars on their curriculum.
Other initiatives include occasional social projects such as Somali entrepreneurs trying to transform neglected neighbourhoods in Minneapolis with the help of an Islamic financing programme that offers micro-loans to small business owners.
Among the latest, and widely unnoticed, Islamic finance transaction in the US was a project financing deal in May 2016 by New York real estate developer Sharif El-Gamal, CEO of Soho Properties, for a development at Park Place in Manhattan, two blocks from the World Trade Center where El-Gamal intends to construct an Islamic museum and a 50-unit condominium tower. It is not widely known that Maybank from Malaysia and Warba Bank from Kuwait led the $219mn financing for the development, and MASIC, the investment arm of Saudi Arabia’s Al-Subeaei family, one of the richest in the Arab world, also participated in the loan package.
“It has been the largest syndicated Shariah-compliant construction loan in New York City so far,” El-Gamal, who has Egyptian roots, said, adding that “it brought on board global investors that have never really participated in real estate transactions in New York.”
Looking back, the foundations of Islamic finance in the US were laid in the 1990s when regulators formally recognised ijarah and murabaha models as being valid for transactions involving residential property purchases. In 1999, the launch of the Dow Jones Islamic Market Index created opportunities for investors looking for Shariah-compliant equities. Today, the index covers thousands of blue chips, fixed income investments and industry indices involving listed companies that meet certain requirements related to the acceptability of their products and business activities for Muslim investors. Apart from that, fund firms and asset managers so far launched Islamic funds with total assets under management of more than $5bn and growing, while the sukuk market has been tapped with issuances by GE Capital, Goldman Sachs, University Bank and utility firm East Cameron Gas.
On the consumer side, Islamic finance in the US is mostly prevalent in the real estate market. Shariah-based home financing products have become popular in some communities, particularly after the subprime mortgage crisis ten years ago, and account for most of the demand.
Where the future lies for Islamic finance in the US is hard to tell, though. It depends much on the political climate and possible interventions by the current administration. It is certainly still a niche sector by assets, but it starts to get noticed.
Regulation-wise, there are little barriers. The relevant regulation on banking in the US is currently similar for all banks, whether conventional or Islamic. However, regulators have raised the concern that banks offering products like murabaha may be violating rules prohibiting banks in the US from owning real estate other than their own buildings and foreclosed properties. As a result, most Islamic finance institutions targeting the retail market in the US rather opt for a licence as a leasing company or mortgage broker, businesses that enjoy fewer regulations than full-fledged banks.
“I believe it is about time that the US take steps to introduce rules and regulations required to engage in the worldwide Islamic finance, sukuk and takaful business,” said Camille Paldi, Islamic finance expert and founder of Franco-American Alliance for Islamic Finance. “The opportunity cost for the US is quite large in not participating in this opportunity. Interest free financing modes may enhance the system currently in use in the US and offers a chance for Americans to diversify portfolios and to attract global investors.”
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