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Tuesday, 27 November 2007

Mainstream banking bows to the Koran

Rising oil wealth is lifting Islamic banking — banking that adheres to the laws of the Koran and its prohibition on charging interest — into the financial mainstream.
Big banks, including Citigroup, HSBC and Deutsche Bank, as well as financial capitals such as London, Tokyo and Hong Kong, are all going into the Islamic banking business.
An estimated 300 Islamic financial institutions hold at least 500billion in assets, and deposits are increasing more than 10% a year.
In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and even Islamic derivatives.
Loans and bonds that conform to the Koran are already available in the U S. And Britain, Japan and Thailand are contemplating issuing Islamic bonds of their own.
In Islamic banking, financiers are required to share borrowers’ risks, meaning that depositors are treated more like shareholders, earning a portion of profits.
“This is an industry on its way from a niche industry to becoming a truly global industry,” said Khawaja Mohammad Salman Younis, managing director for operations at Kuwait Finance House in Malaysia, the world’s second-largest Islamic bank after Al-Rajhi Bank.
“In the next three to five years you’ll see Islamic banks coming out in Australia, China, Japan and other parts of the world,” Younis said.
The stampede into Islamic finance is mostly an effort to tap an estimated 1.5-trillion of funds sloshing around the Middle East, largely from higher oil prices.
While a lot of this oil money was parked in the U S, the UK and Switzerland before September 11 2001, bankers say many wealthy Arabs are investing closer to home, in part to avoid increased scrutiny.
By some estimates, as much as 800-billion of Arab money has moved from the U S and Europe to other regions.
The result is expanding demand for financial services that adhere to Islamic law, or Shariah. — © (2007) New York Times

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