12th December 2011
James Caan, one of the UK’s most successful entrepreneurs, claimed global financial crisis could have been averted had banks abided by Islamic financial laws that outlaw investment in toxic assets and collateral debt obligations. He added that by following Shariah-complaint financial-services, global economy could have avoided damage to a greater extent.
The BBC reality TV series ‘Dragon’s Den’ co-host is on a visit to Dubai to drum up interest in a $69 million student housing product in which he holds a stake. The scheme is being marketed by 90 North, an Islamic investment firm.
“One of the questions we always ask is if the global economy operated under Sharia-compliant finance would we have had a credit crisis,” asked Caan, a British businessman of Pakistani descent. “I think the answer is no actually.”
He emphasised that global crisis have given Islamic banks a unique opportunity to prove their resilience. The Islamic financial system forbids charging interest from idle deposits but allows investment in productive projects and business firms in the resultant profit-sharing investment. While conventional intermediation is largely debt based and allows risk transfer, Islamic intermediation, by contrast, is asset-based and focuses on risk sharing.
“When you think today that half the world’s population today is Muslim, as a businessman I see this as one of the biggest growth market opportunities that is under-exploited,” Caan said in an interview.
“Potentially over the next five or ten years I can see this as being a very attractive position. I think there is an incredible increase in demand for Sharia-compliant opportunities and products.”
As Islamic banking is one of the fastest segments of growing global financial Industry, the British entrepreneur suggested an investment opportunity in the student housing market. “We have identified an investment opportunity in the student housing market. Well-respected universities are still getting more applications than they can cater for so the demand side is very high but most universities are not able to meet the demand in terms of accommodation,” he explained. “You have predictability of income.”
In addition, Caan also said that Islamic finance is a huge growth market and claimed Britain is the best place for investment. “Most of the product that we have sourced is UK-based,” Caan said. “The UK is a natural place that I think Middle East investors find very comfortable, because of the governance, the laws and the transparency.”
He also expressed his optimism that Britain could see itself as the one of the key players for entrepreneurial success by creating a cultural hub of entrepreneurship through proper Islamic prospects followed by other products.
According to Ernst & Young’s World Islamic Banking, the Islamic banking assets in the Middle East and North Africa (MENA) region have increased to $416bn in 2010, representing a five year annual growth of 20 percent compared to less than 9 percent for conventional banks.
Analysts predict Islamic banking assets with commercial lenders will reach $1.1trn in 2012, a jump of 33 percent from their 2010 level of $826bn.
One of the key differences between conventional banks and Islamic banks is that Islamic banking does not allow investing in the kind of instruments that could adversely affect their conventional competitors and trigger financial crisis. These include toxic assets, derivatives, and conventional financial institution securities.
Islamic banking also deters from repackaging debts, as financial instruments generally have to be sold on face value. None of the depositors can draw interest from the banks, as it is prohibited under Islam.
Caan insisted Dubai remains the leading destination for investment among the six Gulf States.
“If I was being pitched in Dragon’s Den by Abu Dhabi, by Qatar, by Dubai – which one would I back? (Dubai) has the least and has made the most out of it,” he said.
“Look at the region, Dubai probably has the least natural resources so it doesn’t have an option. Its drive and determination is much greater than somewhere like Qatar,” the TV personality and famous entrepreneur concluded.