Page 28 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

Introduction 13

growing. Leaders and companies in the broader Middle East are
actively courting Gulf capital, and GCC companies find expansion to
other Middle East markets to be a natural path for growth.
At the same time, Gulf investments in China and India have also
been increasing. For example, the Kuwait Investment Authority was
the single largest subscriber in the Industrial and Commercial Bank of
China’s 2006 public offering—at the time, the largest IPO in world
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history. Gulf investments in China and India have been high-profile
and warmly welcomed, encouraging ongoing capital flows to
complement existing trade flows. Africa represents a new frontier for
Gulf investors, and investment flows have begun. In 2005, for exam-
ple, the Gulf African Bank was established as Kenya’s first Shariah-
compliant bank, with major GCC investors from the UAE, Oman, and
Saudi Arabia as shareholders. 25 As postcrisis valuations have made
emerging markets more accessible than before, Gulf investments in
high-growth parts of Asia and Africa are likely to continue in earnest.
Investment by GCC-based investors in Southeast Asia has been
significant and has been supported in part by the presence of Islamic
finance in both regions. Two of the Gulf’s leading Islamic banks—Al
Rajhi of Saudi Arabia and Kuwait Finance House—have expanded
into Malaysia as a key growth market for their businesses. Dubai
Islamic Investment Group (part of the emirate’s Dubai Group) has
taken a 40 percent equity stake in Bank Islam Malaysia, Malaysia’s
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leading stand-alone Islamic bank. Singapore, too, has attracted Gulf
investment for an Islamic financial institution called the Islamic Bank
of Asia. 27 In fact, one significant motivation behind the promotion of
Islamic finance in Southeast Asia has been the objective of attracting
capital from Gulf markets.
Chapter 7 explores in greater depth the increasing affinity of
Gulf investors for Islamic investments. Gulf investors have historically
invested conventionally (meaning through non-Shariah-compliant
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methods), as they lacked competitive Islamic alternatives that could
meet their investment needs. Over the past decade, however, the
number and sophistication of Shariah-compliant investment vehicles
(both funds and products) has increased manyfold. At the same time,
the number of Islamic investment firms and their total assets under
management have both risen dramatically. This shift toward Shariah
compliance has real implications for asset values in Muslim markets
abroad, as Islamic investors flock toward assets that meet their invest-
ment criteria. The shift has also reduced the relative appeal of non-
Shariah-compliant offerings within the Gulf. In Saudi Arabia, for