http://www.arabnews.com/?page=6§ion=0&article=124503&d=13&m=7&y=2009&pix=business.jpg&category=Business
Monday 13 July 2009 (20 Rajab 1430)
Islamic finance fails to pick up steam in Japan
Mushtak Parker | Arab News
LONDON: Etsuaki Yoshida, deputy head, Africa and the Middle
East, at the Japan Bank for International Cooperation (JBIC), cuts a very
frustrated figure these days. Last year before the global financial crisis set
in, JBIC was still on course to issue the first international Sukuk by a
Japanese entity, albeit in Malaysia.
These days, any talk of an imminent Sukuk origination out of
Japan by a Japanese utility is quietly dismissed. Yet the reasons for this are
not that clear or that forthcoming.
Japanese institutions watch with both envy and trepidation
the progress being made by regional countries including Singapore, Hong Kong,
Korea, Indonesia and even Australia in facilitating Islamic finance in their
jurisdictions or the statement of intent pronounced by regulatory authorities
and governments in these countries relating to promoting Islamic finance in
their markets.
One explanation for the official Japanese ambivalence to
Islamic finance, according to Yoshida, is the market environment in Japan. The
country has a Muslim population of a mere 10,000 compared with 2 million in the
UK and 12 million in France. Japanese banks also historically do not have
strong ties with the Middle East. No Middle Eastern banks have branches in
Japan. Only one Qatari bank has a representative office in Tokyo. Even
Malaysia's CIMB Group recently closed its Tokyo office.
At the same time Japan does not have truly global banking
majors such as HSBC and Japanese banks mainly service the business of overseas
Japanese companies. At best Japan's economic relations with the Middle East are
overshadowed by its oil and petrochemical imports from the region.
"Islamic finance is difficult for the Japanese," stressed
Yoshida in London last week during a Sukuk conference. "Japan is isolated from
international communities, and there are unique language and cultural barriers.
The Japanese tend to think that Islamic finance is mysterious
- something only for Muslims and that interest-free banking is not profitable
for banks. They also believe that Shariah advisories live in mosques." Yoshida
believes that harmonization of Shariah interpretation and modes of financing
would help in demystifying Islamic finance to non-Muslim markets such as Japan.
However, Japanese banks and corporates have long been
involved in Islamic finance where as fund mangers for Islamic equity funds;
raising short-term funds through commodity Murabaha facilities arranged through
London and using contracts on the London Metal Exchange; launching Islamic
exchange-traded funds; setting up joint ventures in Takaful (Islamic insurance)
and participating in Islamic syndications.
Entities such as Mitsubishi, Sumitomo, Mitsui and others have
been active in raising Islamic facilities through London for almost two
decades. Nomura, for instance, is the fund manager of the Al-Nukhba Japanese
Equities Fund, launched by Jeddah-based Al-Tawfeek Company for Investment
Funds, part of the Dallah Albaraka Group. DIAM is another asset manager active
in Islamic investment fund market. Last year, Daiwa Securities launched the
Daiwa Islamic Exchange-traded Fund (ETF) off the FTSE Shariah 100 Japan Index
and which is listed on the Singapore Stock Exchange.
Japanese insurance company, Tokio Marine & Fire Company, is
probably one of the most active non-Muslim companies involved in Takaful. It
started a Takaful operation with a local partner in 2001 in Saudi Arabia. Since
then it has a Retakaful operation in Singapore; a Takaful operation in
Indonesia; a Takaful joint venture with Hong Leong Islamic bank in Malaysia
called Hong Leong Tokio Marine Takaful; and last year the company got a Takaful
license in Egypt.
There have been some encouraging signs recently, especially
in the changes in the financial regulations of the country. According to
Yoshida, the Financial Services Agency of Japan amended the banking regulations
in December 2008. Under the amendments, the subsidiaries of Japanese banks can
now get engaged in Islamic financial transactions.
But Murabahah and Ijarah-type of financing that involves
asset trading is not permissible for Japanese banks under the current Banking
Act.
The above amendments do require that any financial
transaction must be regarded as equal to financing, and that the financial
transaction must be Shariah-compliant with approval by a Shariah board.
According to Yoshida, the amendment has already resulted in
positive developments in the market. For instance, SMBC Europe (London) and
Bank of Tokyo-Mitsubishi UFJ (Malaysia) have set up a dedicated team to
structure and place Islamic deals. He believes that this paves the way for
greater future involvement in the Islamic finance sector by Japanese banks and
securities firms. Already 10 Japanese firms are members of the Kuala
Lumpur-based Islamic Financial Services Board (IFSB), the international body
which sets prudential and supervisory standards for global Islamic finance.
But on whether JBIC is still in the market to issue a Sukuk,
Yoshida remains coy and non-committal.
Sukuk, he suggests, is still not clarified under the Japanese
law whether they constitute bonds or trust beneficiary rights. Other issues
that still need to be resolved include those relating to the assets transferred
to the SPC (special purpose company) in the Sukuk structure; harmonization with
the conventional government bond framework and governmental procedures for
asset transfer in asset-backed Sukuk.
