Islamic finance can provide some suggestions to the G20 countries to consider asset-backed financing, securitisation of real assets, avoidance of excessive leverage and intelligent use of derivatives, said Rushdi Siddiqui, Head of Islamic Finance, Thomson Reuters. "While the world economy is worth trillions, the Islamic finance industry is approaching the

$1 trillion (Dh3.6trn) mark. So it may not yet be a true global heavy weight, but lessons can be shared," he said.

Thomson Reuters has its regional headquarters in Dubai, with 600 staff in 68 countries across the Middle East and Africa. Following are excerpts from the interview with Siddiqui.



Can you tell us how big the Islamic finance market is now?
It depends on who you speak to, with numbers ranging anywhere from $500 billion to $1trn. This high level of variance tends to discredit the industry, which means it has to do a better job in providing accurate data.

How fast is the Islamic finance sector growing currently?

As I said earlier, the number could be between 10 and 25 per cent [again a large variance], and I believe better metrics are necessary for the industry to be successful in the long run. However, the market is clearly growing faster than conventional banking in select Muslim countries that have made a commitment to Islamic finance, such as the UAE, Malaysia, etc.

Has the financial crisis affected Islamic finance in the past six months?

Yes, the collateral impact of the sub-prime-induced credit crisis has impacted confidence and liquidity, but the damage has been less severe than in conventional finance because the principles on which Islamic finance is based are different from that of conventional finance.

Can you elaborate on this?

Yes. Due to the embryonic nature of the industry, it has saved itself from exposure to toxic assets and complicated derivative structured finance. We have yet to hear about Islamic mortgage foreclosures on the same level as conventional mortgages, Islamic bank bailouts at the same level as conventional, no capital injections in the takaful [Islamic insurance] as AIG, etc.

Islamic finance has established its presence in the Middle East and Malaysia. Are there any new markets embracing Islamic finance of late?

Yes, G20 countries such as the UK, Singapore, Hong Kong, and most recently France, have planted the Islamic finance flag in their financial soil. We are even seeing developments in selected parts of Africa. Finally, the Halal industry, which is a brother to Islamic finance, has a presence in Brazil, Australia, New Zealand, all of which are exporters of Halal meat to the GCC.

What is Thomson Reuters currently offering in Islamic finance?

Thomson Reuters offers a platform approach. We want to assist the industry in the growth of Islamic finance because the sector is embryonic in nature, and has been rising to prominence globally on the back of the petro-liquidity spike. But Islamic finance is also fragmented and hence there is much more product pushing versus a holistic approach. The information search costs are very high. There is no global connectivity. There is no 'go to' global platform to execute transactions for all Islamic assets. Thomson Reuters platform is global, well respected and, most important of all, neutral. We will reduce the high information search costs, add global connectivity and allow for the execution of transactions.

Which audiences will you be targeting at Thomson Reuters?

As a global company with global clients, we expect to address the needs of all those interested in Islamic finance on the information side, connectivity side and execution of trade side, no matter where they're located.

What role do you see Islamic finance playing on a global scale in the next five to 10 years?

I see the industry as a sunrise. This crisis has raised the profile of Islamic finance, demonstrating that future investment will be about asset-backed financing, the prohibition against excessive leverage and prohibition against speculative derivative products. Investment will be more about civil engineering than financial engineering. And it's for those reasons that Islamic finance is such a hot commodity at present.

With the financial crisis, the sukuk market has almost died down. When do you think the sukuk market will revive itself?

When there is confidence in the counter-parties, liquidity will start to flow.

Can you explain the ongoing controversy in the Shariah-compliance of certain sukuk models? Has this slowed down the sukuk growth?

Any embryonic industry has growing pains and the sukuk industry is not immune to this. The controversy highlighted the 'checks and balances' in Islamic finance.

It is said standardisation is one of the challenges being faced by Islamic finance. What are the steps taken so far to address this?

Standardisation is one of the most often talked about issues in Islamic finance. Does it make sense to stick to the rules already in place and trust they will help grow the industry? No. Innovation and invention are important to this industry's growth and development and they are attributes of a young versus mature industry. Islamic finance is practised in 57 Muslim countries and other non-Muslim countries. There are cultural influences; there are time influences [religion is 1,400-plus years old]. Islamic finance is in agreement on the prohibition against interest, speculation, uncertainty and financing of the 'sin' industry. It is the details of the contract that vary. We are where we should be at this stage, but we are always moving towards purity.

Do you believe Islamic finance could have been a solution to the current financial crisis?

It can certainly provide some good suggestions for the G20 countries to consider asset-backed financing, securitisation of real assets, avoidance of excessive leverage and intelligent use of derivatives. The world economy is worth trillions, whereas Islamic finance is approaching a $1trn industry, so it's not yet a true global heavy weight, but lessons can be shared.

How do you see the co-existence of conventional and Islamic finance in the coming years?

Malaysia is a great example of a dual banking system plus convergence. We are seeing a more level-playing field created by the UK's Financial Services Authority, Singapore's Monetary Authority of Singapore, Hong Kong Monetary Authority and so on.



PROFILE: Rushdi Siddiqui, Head of Islamic Finance, Thomson Reuters

Siddiqui joined Thomson Reuters recently to head its Islamic finance business.

Having served 10 years with Dow Jones, where he was the global director for its Islamic market indices, Siddiqui led Dow Jones Indexes' global expansion into Islamic finance. Prior to that, in the 1990s, Siddiqui was with the banking sector.