Sharia is Islamic law - the principles by which Muslim men and women live their lives. Islamic banking is a banking system that its consistent with Sharia, and the idea was formed in response to the obvious divergence of many Western banks with these ethical principles. Islamic banks have grown in both number and popularity worldwide since the first one opened its doors in Dubai in 1975. Now Hong Kong will soon have its first Islamic bank, operated by a Malaysian company known as Hong Leong Bank. Islamic banking creates a number of different opportunities in corporate financial planning, not the least of which is that fact that Sharia prohibits usury (the collection and payment of interest), and as such can often be a cheaper option for companies.

The Hong Kong Monetary Authority granted approval for the city's first Islamic banking window to open in August this year. Hong Leong already has an extensive range of Islamic banking products in Malaysia, and this will alow it to extend its financial services to Hong Kong. Other Hong Leong locations include mainland China, and other West and North Asian markets.

Hong Kong is trying to attract Islamic banking and capital to the city - it was announced last winter that planning would focus on this goal. Indeed, hong Kong would like to become the region's hub of Islamic commerce activity - a title currently held by Malaysia. Hong Kong is a thriving international finance center, with an extensive range of corporate advisory financial services, financial planners, and legal advice for entrepreneurs. Islamic banking will open up new dimensions to these service companies.

The first Islamic banking product to be launched in Hong Kong by Hong Leong Bank will be the Commodity Murabahah security, which is used in liquidity management and based on the price mark-up system. Eventually, mudaraba (profit sharing), ijara (leasing), and musyarakah (partnership) will also be offered to Hong Kong customers.

Islamic banking also offers its customers a rare, if unstated, insight into the investments and inner workings of the bank, unseen in Western banking. This is through the assurance that Islamic banks do not invest in 'unethical' businesses. Such businesses under Islamic law are considered to be those involved in prostitution, pork products, gambling, pornography, alcohol, or even businesses that produce media like gossip columns.

For corporate financial planning, the spread of Islamic banking can only be a positive thing. Last year in Malaysia, British giant HSBC group began offering Islamic banking, and was surprised to find that over half of its customers were non-Muslims. The main drawcard of this system of alternative financing is its relative cost. Competitive pricing, and a system whereby loans operate more like leases, make corporate lending much cheaper than it has been in the past. The only thing to be wary of is whether your business may be involved in anything that, while perfectly acceptable by Western standards, may be prohibited by Sharia.

There are now around 265 Islamic banks worldwide, operating in over 40 countries, and with assets over $262 billion. This is according to organizers of the International Islamic Finance Forum, a semi-annual conference for the Islamic banking industry. And HSBC's experience is not unique - now, nearly a quarter of all Islamic banking in Malaysia is transacted by non- Muslims.

BlueWaterArticles.com: - Islamic Banking in Hong Kong

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