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Wednesday, 9 April 2008

Islamic banking grows by leaps and bounds

8 April 08

(MENAFN - Bahrain Tribune) While the development of Islamic banking in the GCC markets will continue to lead the way, industry specialists predicted significant growth for Islamic banking in the United Kingdom, France, Eastern Europe, North Africa, North America and even Latin America, as it embraces the true globalisation path.

However, the passage into the Eastern European nations, where there were no Islamic banking regulations in place would be a big challenge.

"We need to have the right set of regulations, as is the case in Bahrain. A healthy environment is the key to the growth of Islamic banking not to forget creating new products, structures and creative instruments," said Ahmed Jawhry, Chief Investment Officer, Bahrain-based Venture Capital Bank.
He was speaking on 'The role of Islamic banking in the world investment towards eastern European new economies' at the Crans Montana Forum's meet on Central Europe and Eastern New Economies strategies with Gulf States here yesterday.

"More and more countries and global financial institutions are having Islamic windows and rolling out Islamic products and services. Investor awareness is growing and the essence of Islamic banking building up in many parts of the globe. The buffet of products is wide," said Ahmed Abbas, CEO, Liquidity Management Centre, Bahrain. The global industry has trebled in the past decade and is now reportedly worth around $531 billion.

Islamic banking in the GCC has been expanding at double-digit annual growth rates over the past decade. Today, Islamic banks in the Gulf control a market share close to 15 per cent of the regional banking system's assets, and have become part of mainstream financial intermediation in this part of the world.
"Islamic banking needs to be given more credit than what has been given. It has witnessed an exponential growth in the last eight years at a pace that far outstrips that of conventional banking in the last one decade," Abbas said. More over, it remained immune to global economic turbulences over the past several years thanks to its formidable asset-based strengths.

Competition has been heating up, forcing Islamic banks to enhance their commercial entrenchment, develop relevant business models, strengthen their brands and reputation and provide innovative solutions to a growing number of clients attracted by the concept of interest-free banking. "If big players of conventional banking enter the fray, Islamic banking is bound to a long way."

Sukuk was gaining big time momentum. The existing size of the sukuk market was projected to cross $200 billion in the next year, especially as more corporate issuances, both rated and unrated, hit the market and sukuk increasingly becomes an internationally acceptable Islamic capital market's instrument akin to the Murabaha and the Ijarah contracts.

Sukuk were also becoming a global phenomenon, attracting more issuers from a larger pool of countries than ever before, including those in the West. Sovereigns such as the UK Treasury and the Japanese Ministry of Finance were exploring the potential use of sukuk as a debt management tool in the wholesale sterling and yen markets.

Bahrain, a pioneer of Islamic bonds and also the first to launch sovereign sukuks, sought to hasten the inflow of foreign funds for sukuk instruments in the near future with the launch of the new set of regulations.

"While harmonisation of Shariah standards and acute shortage of human resources were issues facing Islamic banking, we need to ensure standards keep pace with the rapid pace and changes in the Islamic finance industry. Growth has superceded the industry regulations."

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