Background of Sub-prime
The sub-prime meltdown which began in August 2007 has brought down several of the long established and large financial establishments in the US and Europe. Major banks and other financial institutions around the world have reported losses of approximately US$540 billion as of September 2008, and this has continued to increase. Despite concerted efforts by governments and central banks worldwide to cut interest rates and inject massive liquidity into the stock market and the banking system, the global crisis has yet to show any sign of abating. Countries are already experiencing recession while the more resilient economies are revising their economic growth downwards.
Cause and effect
The sub-prime crisis was mainly due to collateralized loan obligations (CLO), collateralised debt obligations (CDO) and mortgaged-backed securities (MBS) which were bundled and repackaged and combined with swap and options (swaptions). They then led to the creation of the sub-prime loans when interest rates were low which then fuelled an artificial mortgage growth, leading to a property bubble. In some cases, the derivatives originated by the investment banks surprisingly found their way back into the originators’ books. Thus, this time round, the investment banks themselves became victims of their own doings. In the early months preceding the crisis, proponents of Islamic finance were quick to point out that the crisis would not affect Islamic banks because Islamic finance transactions are asset based and shuns gharar – excessive risk or lack of transparency. Critics on the other hand say that the reason is simply because Islamic finance has not achieved the level of sophistication of the conventional finance and therefore, not exposed to derivatives.
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The lack of Islamic bankers is one of the biggest challenges the industry faces. Attending courses and obtaining certifications on Islamic Finance is key to winning clients’ hearts and minds in the region as the sector adjusts to the growing consumer interest.
While bankers in Europe and the US face new waves of mass lay-offs, downsizings, mergers and acquisitions and even bankruptcies as a result of the sub-prime crisis, the Gulf region sees no let-up in double-digit growth.
‘The need for highly qualified executives in emerging financial hubs such as Dubai, Qatar or Riyadh is enormous,’ says Thomas W. Hofer, Managing Partner of Dubai -based executive search firm Taylor Hofer Partners.
‘The impact of the global credit crunch on Arab and international banks in the oil-rich region has been insignificant,’ he adds.
Lack of knowledge
However, for most high-potential bankers the shift to the Middle East is not a smooth career path.
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INCEIF and ICMA Centre have formalised the collaboration to jointly offer MSc in Investment Banking and Islamic Finance with a simple yet significant signing ceremony at ICMA Centre at University of Reading in UK. The degree aims to respond to the growing interest in Islamic Finance, and also the increase in Islamic Banking services, Islamic Investment and other financial services that are based on Islamic principles.
The partnership brings together two institutions with great reputations for education focused on the financial markets.
In a statement, ICMA Centre said the the MSc is the first in the UK to use Islamic material taught by Islamic specialists and aims to capture the increasing demand for the subject with an academic base and practical orientated views on issues such as Islamic Finance, Economics and Law. Students will benefit from having the opportunity to spend three months studying in Kuala Lumpur and study alongside Islamic Finance professionals. The MSc will not require any previous knowledge of Islamic Law or concepts but will explain the current issues within their overall Islamic economic and legal context.
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