Is­lamic Bank­ing look­ing up

Enterprise - - Top stories -

The ac­tive par­tic­i­pa­tion of prom­i­nent stake­hold­ers, fi­nan­cial ex­perts and lead­ers of Pak­istan’s fi­nan­cial sec­tor along with the com­plete sup­port and pa­tron­age of State Bank of Pak­istan in host­ing the World Is­lamic Fi­nance Sum­mit 2011 in­di­cates the grow­ing global strength of Is­lamic fi­nance.

The pop­u­lar­ity of Is­lamic fi­nance, par­tic­u­larly in Asia, with a world­wide de­mand of Is­lamic fi­nan­cial prod­ucts sur­pass­ing the value of $1 tril­lion, ac­count for this growth. The Asia-Pa­cific na­tions are among a grow­ing band of coun­tries world­wide that sig­nal their in­ten­tion to carve out a larger share of the mar­ket.

The Is­lamic bank­ing con­cept en­cour­ages Mus­lims to save, bor­row or in­vest un­der Is­lamic laws which pro­hibit the charg­ing of in­ter­est and spec­u­la­tive trad­ing. Is­lamic bank­ing does not re­strict the par­tic­i­pa­tion of non-Mus­lims; they are catered to with a fis­cal op­tion of eth­i­cal bank­ing, avail­able for some time in the West, which among other fea­tures mainly keeps away from in­vest­ments in arms or the de­fence in­dus­try. Un­der Is­lamic law, the bank does not charge money on money through a lender-bor­row­ers re­la­tion­ship and also does not profit from late pay­ment penal­ties, which are sup­posed to go to char­ity.

Lo­cal as well as in­ter­na­tional play­ers such as HSBC Amanah, Stan­dard Char­tered Saadiq, Dubai Is­lamic Bank, Meezan Bank and Citibank pro­vide the most de­vel­oped prod­ucts in Is­lamic bank­ing in the re­gion. The ‘what you see is what you get’ ap­proach as­sures no hid­den costs. More­over, it is struc­tured on a risk-shar­ing in­ter­me­di­a­tion be­tween the bank and the cus­tomer.

So far the de­posits of en­tire Is­lamic banks in the coun­try have reached Rs. 400 bil­lion, with banks look­ing out for greater in­vest­ment and low risk op­por­tu­ni­ties. In this re­gard, the to­tal worth of Is­lamic bonds (Ijara Sukuk) is­sued by the State Bank of Pak­istan has reached Rs.190 bil­lion. The de­vel­op­ment of Is­lamic fi­nance in Pak­istan is mov­ing for­ward at a fast pace as now the banks have greater op­por­tu­nity to in­vest in gov­ern­ment pa­pers.

In­ter­na­tion­ally, the post-revo­lu­tion sce­nario in Egypt, Tu­nisia, Jor­dan and Bahrain could be in­ter­est­ing for the Is­lamic Fi­nance in­dus­try. Tu­nisia and Jor­dan did not have a com­pet­i­tive Is­lamic sec­tor. In Egypt the growth of the in­dus­try lagged due to corruption scan­dals in the pres­ence of a more sec­u­lar fi­nan­cial sys­tem. Af­ter the exit of Hosni Mubarak peo­ple are once again mov­ing to­wards Is­lamic bank­ing. How­ever, in Bahrain, the sit­u­a­tion is not favourable as the un­rest has forced the banks to start trans­fer­ring as­sets and em­ploy­ees to places per­ceived as safer. Bahrain is also suf­fer­ing from competition from the newly-formed Is­lamic fi­nance hubs of Dubai, Doha and Abu Dhabi.

More­over, Asia-Pa­cific coun­tries such as Malaysia, In­done­sia and Sin­ga­pore, along with Hong Kong, have set their sights on be­com­ing hubs for Is­lamic fi­nance. In­ter­est­ingly, Bri­tain has also sig­nalled a sim­i­lar in­ten­tion. There has been a great in­flux of women pro­fes­sion­als in Is­lamic fi­nanc­ing in Malaysia, which stems from the re­al­iza­tion of a stronger pull to­wards the Is­lamic sec­tor. Even when the G-7 fi­nance min­is­ters wanted to know about Is­lamic fi­nance, they pre­ferred a fe­male achiever from Malaysia, Dr Zeti Akhtar Aziz, the cen­tral bank gov­er­nor.

Ac­cord­ing to fi­nan­cial ex­perts, Malaysia re­mains the real driver of the Is­lamic bonds mar­ket, but com­pared to South­east Asia, there are other large mar­kets, such as Saudi Ara­bia, Qatar and the United Arab Emi­rates as they have stronger eco­nomic needs and are cred­it­wor­thy.

Vary­ing in­ter­pre­ta­tions of Is­lamic laws in var­i­ous re­gions have caused wide­spread con­fu­sion among peo­ple. Schol­ars be­long­ing to dif­fer­ent schools of thought have not been able to de­velop con­sen­sus over fi­nan­cial prod­ucts. Global man­agers re­gard this as a nor­mal evo­lu­tion of a young in­dus­try from the first phase, where rapid growth of­ten ig­nores poor prac­tice, to ma­tu­rity in the sec­ond phase, which of­fers a reg­u­lated and stan­dard­ized in­dus­try.

With the re­turn of cau­tious op­ti­mism, there are pre­dic­tions that as­sets un­der man­age­ment may quadru­ple to $2.8 tril­lion by 2015. In Pak­istan, the World Is­lamic Fi­nance Sum­mit 2011 is tar­geted to ad­dress ca­pac­ity build­ing, prod­uct de­vel­op­ment and cre­at­ing aware­ness for the in­dus­try, with hopes of growth in the share of Is­lamic bank­ing in the coun­try from the cur­rent seven per­cent to 12 per­cent in the next three years

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.