Page 32 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

Introduction 17

The regulation of outward investments from the Gulf, a key dis-
cussion in public-policy circles, is addressed in Chapter 11. In the
public debate, some have called for blanket prohibitions and barriers.
Such broad measures, however, drive away valuable capital unneces-
sarily. A more nuanced approach is required, especially in an environ-
ment in which capital is scarce worldwide. Institutions that have the
ability to invest will expect accommodation and greater liberty as a
result of their “market power” in capital-constrained times. Gulf
investors—like their Chinese counterparts—know that they have
plenty of choices when it comes to where to invest.
While regulation of investments is often necessary and prudent,
the most practical approach going forward may be deal-specific dis-
closure and regulation. Governments outside the Gulf cannot reason-
ably expect to impose blanket regulations on investors outside their
jurisdiction, but the terms and conditions of particular investments,
especially in strategically sensitive areas, can conceivably be reviewed
on a case-by-case basis. Regimes that have a sophisticated approach
to the regulation of investments, neither blocking capital needlessly
nor risking a loss of control of key economic sectors, are likely to win
the battle for capital from the Gulf and from other net exporters of
wealth.
One key implication of the rise of Islamic finance is the height-
ened importance of Islamic finance capabilities within global financial
institutions. As we discuss in Chapter 12, financial services providers
must increasingly understand Islamic finance in order to service a
broad base of customers in the Gulf and in other key Muslim markets
effectively. Shariah structuring is a complex endeavor, requiring spe-
cialized expertise and a distinct governance and compliance model.
Shariah authenticity is a key imperative for competing in the Islamic
finance sector, and the “window” model by which conventional insti-
tutions service Islamic and conventional clients through the same
entity is facing additional pressures in the marketplace.
While the cost of entry in terms of the expertise required to provide
Islamic financial services can be significant, it is increasingly evident
from the examples of HSBC, Citigroup, and others that no financial
services institution can be truly global without Islamic finance capabili-
ties. At the same time, regulators in the OECD world—most notably
the United Kingdom—are identifying Islamic finance as a growth sector
within an otherwise troubled financial services sector. Initiatives are
therefore underway to make participation in the Shariah-compliant
market more prevalent and easier for Western-based institutions.