When General Electric became the first major United States company to enter the sukuk market, it seemed Islamic finance was finally heading for its day in the sun.
While the global financial crisis had shaken the western world, according to Bursa Malaysia global head of Islamic markets Raja Teh Maimunah, the Islamic market had escaped relatively unscathed.
"It has been really interesting times in the last nine to 12 months as we've seen the landscape change due to what I would call the western financial crisis, but everybody just calls it the global financial crisis," Maimunah said.
"Governments in non-Islamic markets that never used to have any interest in Islamic finance are beginning to show interest and we have had calls inviting us to all corners of the earth."
One of the stumbling blocks in melding modern finance with Islamic law had been the prohibition of the payment of interest, according to a report in The Wall Street Journal.
But the GE Capital deal, which involved a five-year, $500 million Islamic bond, signalled a bright beginning.
"We intend to be regular issuers in the sukuk market and are heartened by the support we have seen in this first transaction," GE Capital senior vice president Kathy Cassidy told The Wall Street Journal.
And Siraj Capital chief executive Ibrahim Mardem-Bey said the transaction was a "big deal".
"People in the industry have been eagerly awaiting something good like this to reignite the market," Mardem-Bey said.
However, mere days after the transaction was made public, property developer Dubai World announced it was seeking to delay debt repayments, with its property unit, Nakheel, seeking a standstill agreement on a US$3.5 billion ($3.8 billion) bond due for repayment on 1 December.
The announcement provoked concern that a potential default would set back the global financial system's recovery, according to a report in The Sydney Morning Herald. It also triggered the biggest share market slump in three months in Asia.
Online news publication FinanceAsia.com had even graver concerns for the entire sukuk market, with one reporter commenting that it had taken the threat of default to shake investors out of their complacency with regard to those structures.
"This will mark the first test of the legal framework underpinning sukuk in general, and it could therefore have implications for Islamic financing globally," Middle Eastern investment bank EFG Hermes said in a report quoted in the FinanceAsia.com article.
But is this really the end?
Maimumah said people had simplified the Dubai World incident by saying it was the end of Islamic finance.
"The Dubai World debt, the one that they can't pay, is conventional. The Islamic component is only $5 billion. But the issue here is not the instrument. It's a credit issue and everyone was overzealous and excited about Dubai's ambition . and maybe investors failed to look at the credit," she said.
"You can't write off Islamic finance because of this little bad apple ... if you aspire to become an international financial services destination, then it is critical that you have an Islamic component."
According to a McKinsey & Company report, Islamic assets under management were US$750 billion during 2007/08 and were expected to hit US$1 trillion by 2010.
And it seems Australia is not ready to turn its back either, this week hosting a high-level Malaysian Islamic finance delegation to Sydney and Melbourne.
"Malaysia has a full-fledged Islamic financial system operating in parallel to the conventional banking system. With over 65 per cent of the population being Muslim, the government is keen to promote Malaysia as a stable Islamic finance hub in Asia," Austrade trade commissioner Patrick Kearins said.
Maimumah said Australian corporates had shown interest in issuing sukuks and the federal government was working hard to look into providing tax neutrality to facilitate further expansion.
"For institutional investors it will give them access to a wider range of product. Due to the recent crisis, some may feel that convention has failed them and they're now looking at Islamic," she said.
