JEDDAH: The Kingdom will be a major hub for Islamic banking, which is growing rapidly, experts said Tuesday at the Jeddah Economic Forum 2011.
In discussing the future of Islamic finance, the challenges and ways of developing the Islamic banking in Muslim countries, Abdullah Bin Sulaiman Al-Rajhi, CEO of Al-Rajhi Bank, pointed out that Saudi Arabia has the capacity to become a hub for Islamic banking industry in the world, but Islamic finance needs efficient financial institutions with unified rules.
“We have financial institutes in the Islamic World that brought more than 40 standards,” he said, citing an example in Malaysia that was established in 2001 to increase the awareness of Islamic concepts and improve Islamic finance.
Some institutes have different principles and weak procedures, which lead to confusion among the customers and different points of view about the institutions, but auditing standards can be adopted as a common framework, Al-Rajhi said. Introducing the standards to a large number of Islamic scholars so they can spread them is an efficient way for the standards to become more acceptable, he added.
Expanding the market with Islamic law will also improve Islamic finance, he added.
“The countries that are still in the beginning of improvement, like Indonesia, Turkey, and some in North Africa should expand their market while mature economies such as Saudi Arabia, Gulf countries, Sudan and Malaysia need institutions with strategies for corporate banking companies, investment companies, new products, asset management and short-term liquidity,” Al-Rajhi said. “The ability to provide competing services is making a difference here,” he added.
The Kingdom has a great role to play in the field of Islamic finance, according to Al-Rajhi. “The size of financing of Islamic banks is more than SR100 billion and lots of companies ask for Islamic products,” he said. Furthermore, the percentage of the loans provided by Islamic banks or Islamic operations increased by two percent in 2010 and reached 58 percent of the total funding, he added.
With the growth of Islamic finance, Abdulkarim Abu Al-Nasr, CEO National Commercial Bank, expects more demand for it, even from non-Muslims.
“The sector size of Islamic finance has reached a trillion dollars and in 2020 it will reach four trillion dollars,” Al-Nasr said.” More than 75 countries and 430 Islamic institutes provide Islamic products.”
Islamic finance is searching for solutions that meet with Islamic desires, not only those relating to economics, he said. “In Malaysia, non-Muslim clients deal with Islamic banks because Islamic finance focuses on moral standards, connects with development and avoids harmful activities for society,” Al-Nasr explained.
Some 20 years ago, there were more skeptics about Islamic finance, but now, after the financial crisis, most of them believe in it and it is expected to grow dramatically because there is significant evidence that Islamic finance was not affected by the crisis, he said.
“Saudi Arabia represents 25 percent of the Arab economic world, a huge number of clients ask for Islamic finance and 95 percent of the finance operations, especially the personal ones such as loans, is Islamic,” he said. “There is a big opportunity to finance the companies as well.”
Humayun Dar, managing director of BMB Islamic, said Islamic finance is an important development, but according to many surveys he has conducted, most non-Muslims are not sold on Islamic banking.
“Unlike Saudi Arabia where the majority of people prefer Islamic banks and 90 percent of the banks operate under Shariah law, 75 percent of the world’s population is not convinced,” he said.
“Whenever Islamic bank regulations have been taken from Shariah, they have been more successful,” he said. “Social responsibility plays a significant role in Islamic finance and we can benefit from Zakat, which is not only for charity, but is for business as well.”
– Saudi Gazette / 27 March 2011