Shariah Shipping Finance: A Developing Opportunity

The combined economies of Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman have grown by 74% over the past three years. Per capita income in Qatar has crossed the $50,000 mark and is now ranked the fourth highest in the world. Fuelled by petrodollars, regional banks are growing rapidly and developing vast pools of liquidity that they are anxious to invest, but there’s a catch. Much of that money answers to Shariah law and hence cannot be lent in the traditional sense because it is prohibited from collecting interest. Equity investments are more apt to be Shariah compliant and thus many of the Shariah dollars flow to global – and now local – stock exchanges.

But for companies, issuing equity is generally more expensive than raising debt. And simply because they are prohibited from collecting interest on standard bank debt or bonds does not mean that Shariahcompliant Middle Eastern investors do not like to diversify their portfolios with instruments that are lower risk than equity and provide stable returns. And where there is a will, there is a way. The trick is that finding that way, if a very good business for investment bankers and lawyers, can often be a costly proposition for investors and those raising funds.

Needless to say, then, when it comes to using Shariahcompliant investment products, there is a very delicate costbenefit threshold. And up through 2000 this threshold had not proved worth crossing for international shipowners, or for that matter for much of the international financial community. But as oil dollars continue to flow into the Middle East, construction booms, ship prices remain near historical highs, and the international ship finance community grows increasingly sophisticated, the cost-benefit equation has begun to change.

This is only an excerpt of Shariah Shipping Finance: A Developing Opportunity

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