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Islamic Finance: the Banking-Wonder
Say what you will but the truth is the Islamic Finance industry’s got a long way to go. Eva Fernandes proves just that.
June 28, 2011 8:07 by Eva Fernandes
The business section of the local press is abuzz with news of developments in the world of Islamic Banking. And while many papers are all too ready to jump on the Islamic-banking-is-the-future bandwagon, Kipp will be the first to admit that there are still a lot of challenges ahead of the sector.
But before we burst your bubble, if you are in the pro-Sharia camp, some good news: to begin with, there is the recent launch of a new Sharia-compliant repurchase facility, which will allow banks to borrow money in keeping with Sharia principles. This facility will accept the Central Bank’s Islamic certificates of deposit as collateral. “The objective is to create an instrument where banks can invest in and get liquidity from. By providing this facility it might encourage holdings of Islamic certificates of deposit,” said Saif Al Shamsi, the senior executive director of the Central Bank’s treasury department.
In other Islamic financing news, Dubai Islamic Bank recently announced the launch of its Prudential Sharia Opportunities – Asia Pacific Equity Fund (the Fund), for Sharia-compliant companies within the Asia Pacific region (excluding Japan). Participation in the Fund allows investors to gain exposure across a range of growth countries and industries through a single platform.
Dr. Adnan Chilwan, Deputy CEO – Chief of Consumer and Wholesale Banking, Dubai Islamic Bank, said: “The Asia Pacific region has emerged as an anchor for the global economic recovery and, driven by consumption and investment, is poised for further growth. This new product is (…) designed for our valued high net worth customers who understand the opportunities presented by the Asia Pacific equities markets, and would like to capitalise on the same.”
And though it is all looking good for the Islamic bank as TRENDS Atique Naqvi reports, the industry still has a long way to go. CEO of Noor Islamic Bank and Group CEO of Noor Investment Group Hussain Al Qemzi told him that there was a need for ongoing education and creating awareness on the benefits of Islamic finance against conventional models. In addition there is a real need for more qualified Shari’a scholars in key disciplines, such as banking and finance, legal, credit risk and accounting principles, are needed more than ever. One of the major issues is the potential conflicts with the central banks since Islamic banks have been established as separate entities as problems are likely to be further aggravated when an Islamic bank is established in a non-Muslim nation, and is subject to that nation’s rules and requirements.
“While each region is at quite a different stage in the evolutionary cycle – from the mature market of Malaysia on the one hand to the more nascent markets of Africa – the needs and challenges are not dissimilar,” said Al Qemzi. Although the Middle East region is viewed as one of the more mature markets and some of the GCC banks are today seeking growth beyond their borders, the players in the region are yet to realise their full potential, said the CEO of Noor Islamic Bank.