Mr. Shimazu has worked in investment banking and capital markets for the last 8 years since graduating from the Central European University (CEU), focusing mainly on Sharia-compliant financial transactions in global Islamic finance markets.
He is an Associate Director in Debts Capital Markets at Emirates NBD in Dubai, responsible for originating and executing Islamic bond (sukuk) issuances and structuring other Islamic financial transactions such as project finance and syndicated financing in the MENA region and Southeast Asia. Majority-owned by the government of Dubai, Emirates NBD is one of the largest financial institutions in the MENA region and a leading arranger of Islamic bonds globally. Prior to Emirates NBD, he was a Vice President in of Islamic Origination (Asia Pacific) at HSBC Malaysia and an investment banking analyst at Citi Japan.
Mr. Shimazu completed his undergraduate degree in a joint CEU Business School and Bocconi University (Italy) program in 2008. He holds a graduate degree from the International Centre for Education in Islamic Finance (INCEIF), a postgraduate institution established by the central bank of Malaysia and dedicated solely to Islamic finance.
This interview was taken following a lecture given by Mr. Shimazu at CEU in February on Opportunities and Challenges in Islamic finance and the Central role of law in its future growth and development by our former Managing Editor and current President of the Board, Ioana Stupariu. Ioana is currently a researcher at CEU, in Budapest.
Ioana Stupariu: How did you end up specialising in Islamic finance and why did you choose this particular topic?
Ryosuke Shimazu: I have always been very interested in Philosophy and Religion. In high-school, I had a fantastic philosophy teacher, with whom I used to discuss different topics extensively. I even studied Philosophy and Religion for a year at university in Canada. So my interest in Islamic finance came naturally. At that time, the Middle East economy was booming and if you flipped through newspapers you could find a number of articles about Islamic finance, probably one article every few days, and a lot of people were also talking about it.
Since my professor from CEU, Tibor Tajti, also had some knowledge about that, I ended up writing my bachelor thesis on Islamic finance under his supervision. That gave me a bit of insight into the field and helped me decide to work in that industry at some point. Finally, after working for two years in Japan and doing my master’s in Malaysia in Islamic finance, I eventually applied for a job in the field, and that is how I ended up moving to Dubai.
I.S.: Considering that law and finance intersect with each other in many ways, did you ever feel any attraction to the legal field? If so, in what instances, and why did you decide not to pursue a career in law?
R.S.: To be honest, I seriously thought about law school in high school, but for various reasons I did not end up pursuing that path. One of the factors was that I really wanted to move to Europe and studying law would have meant staying back in Canada; another one was that after studying something very abstract for a year – Philosophy and Religion – I really wanted something more concrete, something practical, so I chose business and finance. But my interest for law never died; in fact, it helped me later when I started working in Islamic finance since it required me to get well acquainted with Sharia law. After that, I never really considered going into the legal field since I felt settled in finance.
I.S.: How much do you have to deal with legal matters and how much do you interact with lawyers?
R.S.: After I moved to Islamic finance from conventional finance, what was required from me changed dramatically; before, I was simply making proposing fund raising opportunities to clients through presentations and meetings. In Islamic finance, there were a lot of legal issues coming from the client side or just from the products themselves. When we go to talk to clients, we have to be very familiar with potential legal issues and how to solve them. We cannot say ‘we don’t know, we have to ask our lawyers’.
Because legal knowledge was so much more required, I had to constantly make efforts to equip myself with as much legal knowledge as possible with the help of practitioners and academics. For instance, I had to learn the differences between common law and civil law and study key clauses found in contracts. This is because Islamic finance requires certain additional and unique clauses in its contracts, of which we have to be aware, so we always checked with our lawyers and made sure that we fully understood relevant legal implications before meeting clients. But the problem is that if you do not speak the same language with lawyers it is very hard to make ourselves understood and receive expected advice from them, which can mean extra time and thus extra costs for transactions. I also had to get acquainted with English law, which is often used for cross-border Islamic finance transactions, and the same with the local laws.
I.S.: How is Islamic finance different from the usual world of finance?
R.S.: Simply put, Islamic finance is a financial method compliant with Sharia law. As you know, no country officially adopts Sharia law in its entirety so each bank has its own board of Sharia scholars. Except in certain jurisdictions where official Sharia boards for Islamic finance exist at the government level, we ensure Sharia compliance by ourselves with our own Sharia scholars. All documents are structured and drafted to be compliant with Sharia law and then we get approval from our respective Sharia boards.
I.S.: So it is basically an additional set of standards to be complied with.
R.S.: Exactly. There are some key differences between conventional finance and Islamic finance. Sharia prohibits some types of transactions; for instance, you cannot pay or receive interest for loans.
Also, your financial transactions have to be free from excessive uncertainty, e.g., if you want to sell something the item has to be present there. You cannot sell something that does not exist in the present or that the buyer does not own or has not seen. Such terms as the price and delivery time have to be fixed at the time of contract without ambiguity. There are certain exceptions, but this is the general rule. Derivatives, for instance, are a bit tricky to structure because they typically involve uncertainty, but we have our ways to structure derivatives widely accepted as compliant with Sharia.
We are also not supposed to enter into transactions that function like gambling, since that is also prohibited by Sharia law. This makes insurance problematic, and in fact a lot of Sharia scholars consider conventional insurance as akin to gambling. This means that we had to structure insurance to be compliant with Sharia law, and the result was the so-called takaful.
Another set of differences is about the object of transactions. Islamic finance transactions cannot concern several non-permissible items such as pork and alcohol. We, as a bank, cannot give Islamic finance to, for instance, a brewery whose profit comes mainly from selling beers.
Apart from these differences that I have briefly highlighted, Islamic finance and conventional finance are almost identical in terms of economics such as terms and risks. The underlying structures are different from Sharia and documentation perspectives, but for banks/investors as well as borrowers/issuers they are almost the same. Basically, Sharia is an additional regulation or law to abide by. The unique aspect of Sharia in finance is that it is not codified unlike any other law or regulation relevant to financial transactions.
I.S.: What are the advantages and disadvantages of Islamic finance?
R.S.: If you do Islamic finance you need to adopt a different structure, often more complicated, because you need to comply with Sharia law. But then, one big advantage for borrowers or Sukuk issuers is that you have access to Islamic banks and investors who could have a high level of liquidity, depending on market conditions, which makes it easier for them to raise money with favourable terms. In the last few years, some non-Muslim-majority countries have even issued sovereign Islamic bonds; such as the UK, which issued Sukuk in British pounds. So did South Africa, Hong Kong, and Luxembourg. And of course, you have governments of Islamic countries and Muslim-majority countries: Bahrain, Brunei, Indonesia, Kazakhstan, Malaysia, Pakistan, Qatar, UAE and so on.
I.S.: Many experts talk about the growing importance of Islamic finance and Islamic banks in and outside Islamic countries. What could you tell us about it, is this a real phenomenon? If yes, why do you think that is the case?
R.S.: There is no consensus about Islamic finance, because everyone has different criteria – what is Islamic, what is not, what is to be included in the financial sector, what is not. Just to give you some statistics, generally, we say that the current size of the Islamic finance sector is somewhere around 1.5 trillion dollars, which is about a bit less than 2% of the total financial assets in the world. It may seem negligible, but in certain countries, like in the Middle East or Southeast Asia, the market share is much higher. In many Muslim-majority countries in these regions, Islamic finance accounts for about a quarter of their financial markets. In Indonesia, the market share is about 5% but is increasing fast. In general, Islamic finance is growing faster than conventional globally partially because the Muslim population is increasing faster and their economies are growing faster. Also, some governments are encouraging development of this industry too. Malaysia is a good example for this. There the government is supportive, giving some tax incentives.
I.S.: Since Islamic finance is influenced mainly by Sharia law, it is highly relevant to discuss how uniform Sharia law is around the globe.
R.S.: There are differences in Sharia law seen in Islamic finance. Different interpretation of Sharia is found among different denominations, schools of thoughts, and individual scholars. In practice, we need to be particularly mindful of differences in Sharia when we work on cross-border transactions. Generally speaking, we see some important differences between the Middle East and Southeast Asia regions in terms of how Sharia law is interpreted and applied to financial transactions. Some transactions approved as Sharia compliant in one country or region might not necessarily be accepted as such in another.
I.S.: Would you recommend law students to specialise, or at least get acquainted with Islamic finance, and why?
R.S.: Definitely. Often international transactions that happen in Malaysia or in Dubai are governed by English law, thus we engage a lot of English lawyers or European law firms. Though they are not necessarily specialised in Sharia law, they know the specifics and mainly how to deal with Islamic finance documents, usually because of their experience. However, the market for Islamic finance is still limited so finding a position dedicated to it might be challenging.
I would recommend though, in general, law students get accustomed to different approaches to law—given that, because of globalization, lawyers are generally expected to be very flexible and adaptable to a variety of types of regulations and legal practice.
I.S.: Lastly, our trademark question: if you have to give one piece of advice from your experience, what would you recommend to law students?
R.S.: I can only speak from my experience of working with law practitioners in my work. From a bankers’ perspective, what we really appreciate is lawyers with a service-oriented attitude and client-centric approach. A lawyer’s job is to give services such as advice, so approachability, friendliness, and responsibility towards the client matter a lot to us. Of course, very good legal knowledge is a must, but we like lawyers who are nice to work with as well.
Moreover, there might be some lawyers who tend to bombard their clients with loads of information. Although it depends largely on the situation, it is often more helpful if we receive well-summarized information and advice essential for our decision making. We are more impressed by a succinct but well-analysed brief based on their valuable experiences than by a hundreds-page report.
This interview was originally published in issue 4.2 of the magazine, which can be accessed here.