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Kipp does not like

Kipp does not like

Qatar is getting a lot of things right, but with the latest bank rules it is making a mistake, thinks Samuel Potter.

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February 7, 2011 2:38 by



An interesting development in the Qatar banking industry has caught many off guard. The country’s central bank has ordered conventional lenders operating in the state to shut down Islamic finance activities by the end of 2011. The news was reported by Dow Jones Newswires and attributed to two bankers familiar with the matter.

According to the bankers, “The central bank earlier this month sent a memorandum to non-Islamic lenders operating in Qatar asking them to close their Islamic units without providing a reason for the decision.” The move is obviously good news for the pure Islamic operators, who have subsequently enjoyed a rise in share value in the last couple of days.

The move is at yet unexplained, but it will target international banks operating in Qatar that have attempted to tap into the demand for Islamic financial products. HSBC is reportedly in talks with the central bank to get clarification on the matter, and to find “a workable solution” for HSBC Amanah, its Islamic banking unit. But the move will also hit local banks, including Qatar National Bank and Doha Bank. Dow Jones says that, for QNB, 12 percent of assets, 16 percent of loans, and 9 percent of profits derive from Islamic finance.

Why does it matter to us? Well, you might not be involved with Islamic banking in Qatar, but you could well be doing other forms of business, and if the government can present such a major rule shift so abruptly in the banking industry, it is not beyond introducing large scale changes in other industries, too.

The reasons behind the Qatar government’s decision are still unclear, and few experts have been able to explain it, other than to say it simply wants to separate the product offering of conventional banks and shariah-compliant lenders. That’s the government’s prerogative of course, but this all smacks of shutting the stable door after the horse has bolted.

If these banks were new arrivals to the market, being told what they can and can’t do, fair enough. But they are established – in many ways very well established – and the change in rules means a big upheaval to many of them. Not just in terms of revenue streams, which is serious enough, with many banks set to lose big money, but also in terms of organizational structure and employees – they have staff employed in Islamic banking departments dedicated to the purpose. What will happen to them? And we haven’t even mentioned the hassle this will cause established customers, who haven’t asked for any of the bother they will now face.

I like a lot of what Qatar has got going on – it’s ambitious, it’s progressive, and it’s healthy. But if it starts moving business goalposts on a whim, in the manner of other Gulf countries (who shall remain nameless), I’ll be disappointed, and probably not nearly as disappointed as the companies operating there.



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2 Comments

  1. Dismanirie on February 8, 2011 7:26 am

    Like so many decisions in places like Qatar, the lack of prior consultation or rationality which accompanies such whimsical edicts only has the effect of creating serious doubts about the government’s capacity to manage a modern society.

    My bet is that this decree will be quietly disregarded and never enforced. But you won’t read about it being dropped.

     
  2. Andy on February 11, 2011 6:04 pm

    Among the reasons for this decision, as described by newspapers in Qatar, are that the “Islamic windows” of commercial banks do not always comply with the principles of Islamic banking, and that some of them employ staff that are under-qualified for the job.

    So the decree seems to be aiming at “cleaning up” this sector, to make it more compliant with Islamic banking principles.

    Unfortunately, the decree has come as a bombshell, which is not unusual, leaving the general public (and the banks, probably) confused and wondering what is going to happen now.

    In April last year, another decree came in similar fashion. That time it was about allowing post-dated checks to be cashed at any time before the due-date. It also caused a lot of confusion and was later dropped.

     

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