Page 25 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

10 Introduction

based in the Gulf and owned by Gulf shareholders. We review the
principal drivers of the growth in Islamic finance’s overall market
share, including the expansion of product offerings and strong
Shariah affinity among GCC youth. As the sector has expanded, it
faces key strategic challenges related to regulation, human capital,
standardization, and other such areas. In particular, we will probe a
perceived trade-off between gaining market share and retaining
Shariah authenticity—a trade-off that will have fundamental conse-
quences for the Islamic finance sector in the coming years.
In the global financial crisis, many observers—including the
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Vatican —have pointed to Islamic finance as a potential source of
ideas and solutions. Our discussion of the sector will touch on the rel-
evance of Islamic finance principles to the crisis, while noting that the
sector’s application of these principles has been incomplete. The crisis
can, therefore, both highlight the relevance of certain ethical princi-
ples found in Islamic finance and act as a reminder to the Islamic
finance sector of the importance of these principles.

Part II: Developments and Trends
After Part I of the book describes who these new global players are,
Part II discusses where the players are going. Having laid the ground-
work of context and background, we turn to a discussion of key
developments and trends related to Gulf capital and Islamic finance.
Chapter 4 highlights the increased sophistication of Gulf
investors. In the oil boom of the 1970s, Gulf investments (beyond the
development of core infrastructure at home) flowed into traditional
asset classes and “plain vanilla” investment products such as US
Treasury bills. Investments were largely managed by foreign institu-
tions, and in-market investment organizations were scarce. In a num-
ber of ways, the scale of Gulf investments exceeded the sophistication
of Gulf investment strategies.
In the boom of the 2000s, GCC investors have expanded to a far
broader range of asset classes. While US Treasuries, fixed-income
products, and large-cap equity positions still make up a large part of
Gulf portfolios, GCC investors have also given increased attention to
real estate, private equity, hedge funds, and other “alternative” asset
classes. This increased sophistication has largely been enabled by
enhanced human capital and organizational capabilities within Gulf
institutions. GCC-based investment bodies and firms have, especially
over the past decade, had greater access to world-class talent and