Online version: http://www.lowtax.net/newsletter/ltx_focus_january09.asp

Dear Colleague,

In this month's LTX focus we take a fresh look at Islamic Finance - The New Mainstream Alternative.

The global Islamic finance industry is now worth more than $1 trillion in terms of assets, having quadrupled in the last three years. Moody's estimates that growth in the total size of Islamic financial assets will have been between 20% and 30% in 2008, following 27% growth in 2007. And the firm sees growth continuing in 2009, although at 'only' 15% or so.

A recent paper from the International Monetary Fund says that more and more countries are climbing aboard the sukuk issuance band-waggon in order to tap the massive pools of money in the hands of Muslim individuals and their companies. The UK, Japan and Thailand are among the countries which have recently begun to establish sukuk issuance programmes. This often requires significant changes to monetary and fiscal legislation, though, as does the opening up of domestic financial markets to Islamic finance. Dozens of countries have either already made these changes, or have indicated that they are about to do so, the latest being France - Finance Minister Christine Lagarde said in December that she will make regulatory changes to enable Paris to become a major market-place for Islamic finance.

The most prominent national issuers of Islamic debt instruments so far have been Malaysia, Qatar, Bahrain, and Pakistan, along with some of the multilateral institutions, including the Islamic Development Bank and the World Bank, although the market has been dominated by corporates, which have accounted for more than three-quarters of issuance to date.

Geographically, Asia, and especially Malaysia, have dominated the market, although issuance in the GCC (Gulf Cooperation Council) is rapidly catching up.

If 2006 was the year in which Islamic finance, a concept virtually unheard of outside banking circles a decade ago, finally crossed the border-line between slightly exotic alternative territory and the mainstream, 2007 saw an explosion of demand for alternatives to western banking products structured along ethically-aware Islamic principles. In early 2007 Islamic finance received the financial equivalent of the accolade when UK Chancellor Gordon Brown announced that the Islamic finance industry would be given the same tax treatment in the UK as other investments. The move was applauded by tax and finance experts, who say it put the City of London at the forefront of the nascent but rapidly growing global industry.

You can read the rest of the feature here: http://www.investorsoffshore.com/html/specials/january09_islamic.html

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Kind regards,

Kate James