At the MOU signing, from left: Sandy Shipton, Executive Director Wealth Management, DIFC Authority; Abdulla Al Awar, Managing Director, DIFC Authority; Eddie Yue, Deputy Chief Executive, HKMA; Dr Nasser Saidi, Chief Economist, DIFC Authority; Dean Farris, Chief Legal Officer, DIFC Authority; and Chirag Shah, Director-Strategy and Business Development, DIFC Authority

Hong Kong has taken another step towards establishing itself as a hub for Islamic financing through a new Islamic finance deal with Dubai.

The Hong Kong Monetary Authority (HKMA) and the Dubai International Financial Centre Authority (DIFC Authority) signed a Memorandum of Understanding (MOU) in May to boost cooperation in developing Sharia-compliant financial products and financial infrastructure in the two jurisdictions.

“The signing of the MOU between the HKMA and the DIFC Authority marks an important milestone in cooperation between the two organisations,” said Eddie Yue, HKMA’s Deputy Chief Executive. “I am confident that the MOU will enhance the cooperation between the HKMA and the DIFC Authority, particularly in the development of Islamic finance which, in turn, will benefit Hong Kong as an international financial centre.”

Exchange of advice

Under the deal, both sides agree to exchange advice on the development of legal and regulatory frameworks, as well as promote training, education and dialogue with Sharia boards and Shariah scholars.

It also sets out to explore ways to foster Islamic financial activities between the DIFC Authority and Hong Kong, such as in the trading of sukuk, the Islamic equivalent of a bond, and other Sharia-compliant financial instruments. There will also be technical cooperation and links between each party’s financial infrastructure developments as well as joint studies on the extent to which each party’s financial infrastructure can support the other’s, especially in terms of cross-border financial activities.

Nassser Al Shaali, CEO of DIFC Authority, expressed confidence that the agreement will benefit both markets. “It will enable us to find innovative solutions for critical issues by promoting shared expertise and consultation with industry.

I am also confident this framework of cooperation will promote Islamic financial activities between DIFC Authority and Hong Kong, particularly in the trading of sukuks and other Sharia-compliant instruments,” he said.

Phenomenal growth in sukuk market

The signing comes on the heels of a similar pact reached recently between the Hong Kong Securities and Futures Commission and the Dubai Financial Services Authority (DFSA), which is the independent regulator of financial services providers, financial services and products related to banking, securities, Islamic finance, asset management and insurance in the Dubai International Financial Centre.

The deals are part of efforts to develop Hong Kong as an Islamic financial centre in Asia, after Chief Executive Donald Tsang announced in his policy speech last October that an Islamic bond market was to be created in the city.  The Hang Seng Banks’ Islamic China Index Fund was launched one month later and has since raised US$65 million, with more than 80 per cent coming from local retail investors. The fund invests mainly in the constituents of the Dow Jones Islamic Market China/Hong Kong Titans Index, comprising the 30 largest Shariah-compliant stocks of companies doing business in the Chinese mainland and Hong Kong, and traded on the Hong Kong Stock Exchange.

The sukuk market has registered phenomenal growth, quadrupling from US$12 billion in 2005 to US$47 billion in 2007. “It’s growing fast and the market doesn’t seem to have enough of them,” said Mabi Ali Al-Jarhi, President of the International Association for Islamic Economics. Hong Kong has the potential to become the world centre for Islamic financing, he noted, because of huge investment opportunites in the Chinese mainland.

The Hong Kong Airport Authority is poised to launch the city’s first Islamic bond. Airport Authority chief executive Stanley Hui was reported as saying it could happen as early as the third quarter of this year. The authority is said to be awaiting approval for a government tax exemption to make the bond comply with Islamic law, which bans interest income but permits profit sharing. Profits, however, are currently taxable in Hong Kong.

The Hong Kong Trade Development Council earlier this year launched a series of initiatives in the Middle East, inviting investors there to extend and diversify their global reach through Hong Kong. The week-long business services sector trip covered the Saudi Arabian capital of Riyadh, Kuwait, Abu Dhabi and Dubai.

Hong Kong is well placed to become the Islamic finance hub

Related links
HK Monetary Authority 
Dubai International Financial Centre Authority