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Thursday, 13 December 2007

Islamic banking becomes truly global biz

(MENAFN - Bahrain Tribune, 12 Dec 07) Despite unprecedented growth, harmonisation of Shari'ah standards, transparency, innovative products, human resources and relatively small base of the Islamic financial institutions (IFIs) will continue to be main challenges for the global Islamic banking industry. According to experts who participated in the global meet in Bahrain lauded the growth of Islamic banks between 20 to 40 per cent annually. However, the assets of the global Islamic banks are less than one per cent of the global assets of the banks, offering a rare opportunity the banks. The 14th Annual World Islamic Banking Conference (WIBC) in Bahrain under the patronage of the Prime Minister Shaikh Khalifa bin Salman Al Khalifa concluded with a resolve from the Islamic Financial Institutions and regulators to maintain the pace of development in 2008 and beyond.This year's event was attended over 1050 delegates from over 35 countries was perhaps one of the biggest gathering since the launch of the WIBC 14 years ago and the deliberations over the two days focused in identifying the weaknesses and the strengths of this segment of the global economy. By all definitions, Islamic banking has emerged as a truly global business as given the level of interest among the wide consumer base in public and private sectors you can't restrict this business to a niche market. The rapid growth and penetration of this business has made it business of truly a global nature. Now the IFIs are present in almost all markets serving huge customer in the world. The Islamic banking assets represent less than one per cent of the global banking assets. This segment has seen massive growth in recent years with total assets under management rising to $750 billion. The industry remains largely fragmented and no Islamic bank really created global brand which demands consolidation, innovation and diversity. We need to invest in people and products and should break the traditional thinking barrier of restricting this business to traditional MENA or Arab markets.According to figures the Islamic banks and financial institutions are represented in almost 75 countries, showing the rapid growth in this segment of the global financial community. Now, these institutions are represented in South East Asia and MENA region, sizeable in EU and North America.The visibility of the Islamic bank has been increased as we have seen Islamic banking conferences in New York and Canada, the areas quite recently seen as a new markets for Islamic or shariah complaint businesses. Now even the UK regulator FSA is authorising the first shariah compliant entity to operate in the UK market. In addition now you have institutions in Albania, Netherlands, Gambia and Niger. The UK is also weighing the option to launch the first sovereign Islamic bond.Another salient feature of the WIBC 2007 was the WIBC Competitiveness Report 2007 launched by McKinsey & Company contained three key messages including growth in the IFIs, rising interest and capturing opportunities. Burhanuddin Abdullah, Governor of the Bank of Indonesia on this occasion said that WIBC 2007 was certainly an important stepping-stone, which would contribute in determining our pathway to the future in building a more resilient and prosperous Islamic banking and financial industry. The Central Bank of Bahrain Rasheed Al Maraj in his keynote address said that the availability of excess liquidity coupled with the explosion of real estate projects in the MENA region have conspired to breed a level of complacency in some Islamic banks.Highlighting the challenges being faced by the Islamic banking industry he said though the Islamic banks have flourished in number, there is increasing evidence that banks will find it difficult to maintain the pace of innovation that marked the 1990s. Over the last 20 years we have seen the establishment of several of Islamic banks and financing companies as well as Islamic banking windows as banks have rushed to satisfy the appetite of investors and consumers for shari'a compliant products to finance assets from cars and houses to aircraft and project finance. Islamic banks seem to be increasingly focused on real estate and asset finance but not moving into other financial or liquid instruments with active secondary markets. Perhaps we can take this opportunity to look at the challenges facing Islamic banking and see how the industry, its regulators and stakeholders may respond.It is clear that the recent developments in the international Islamic banking and financial industry are a reflection of industry's eagerness to intensify the economic and financial activities under the compliance of sharia principles.

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