China’s pursuit of business and economic links to the Middle East is expected to spur further development in Islamic finance around the world.
Specifically, China’s Belt and Road Initiative, a regional infrastructure investment program spanning over 100 countries, has been touted as a boon for the Islamic banking sector. Such financing complies with Sharia principles, meaning it adheres to the Islamic laws that prohibit earning interest on loans and bar funding activities involving alcohol, pork, pornography or gambling.
The linkage between the BRI and Sharia-compliant financing is that China will require vast investment to fund its grand ambitions to construct a network of land and maritime economic corridors through the Middle East, Africa and Europe. Much of that could come from funds raised through Islamic financing tools, experts said.
On top of that, “some of the projects (that are) part of the (BRI) will go through some core Islamic finance countries and therefore might be financed in Sharia-compliant ways,” said Mohamed Damak, global head of Islamic finance at S&P Global Ratings.
Many of the countries along the infrastructure belt are home to predominantly Muslim populations, including Central Asian countries such as Kazakhstan and Uzbekistan.
The Islamic finance market is poised to grow to $3.8 trillion by 2022 — up from $2.2 trillion in 2016, according to Thomson Reuters calculations.
It also has potential beyond Muslim countries because organizations are placing greater importance on sustainability goals and such standards often have overlapping principles with Islamic investing.
Beijing may be keen to get in on the action where the Belt and Road is concerned: State-owned news outlet CGTN published a May opinion piece cheering the possibility of Islamic financial vehicles pairing with the multi-content infrastructure project. (Courtesy: CNBC)