RBS sees big growth in Islamic finance: Reuters

DUBAI (Reuters) - Royal Bank of Scotland sees big growth opportunities in Islamic investment banking, expecting asset growth rates to remain 15-20 percent annually and profitability levels to increase, a leading executive said.

Navid Goraya, RBS' global head of Islamic banking, said margins have increased as financing costs have fallen, putting the Islamic sector on a solid footing this year.

"Profitability has not been hurt," he told the Reuters Islamic Banking and Finance Summit on Monday. "You could see profitability go up."

In the six countries of the Gulf Cooperation Council -- the world's biggest market for Islamic financial services -- asset growth will remain at 15-20 percent annually, despite the global wealth destruction caused by the financial crisis, he said.

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A Tale of Two Shari'a Finance Articles: Europe News

By David J. Rusin

Journalistic skepticism is rare when it comes to Shari'a banking. In January this blog highlighted an Associated Press puff piece on the subject, deeming it an early "contender for the most one-sided story of 2009." However, a new frontrunner has emerged: another Shari'a banking article.

Stephen Magagnini's March 30 piece in the Sacramento Bee presents Islamic finance as a panacea, a "socially responsible" way of doing business which has ensured that "the recession gripping the nation has taken less of a toll on American Muslims who follow age-old Islamic laws." The money quote can be found in the third paragraph:

"If everybody was Shari'a-compliant, there would be no recession," said Farouk Fakira, a Yemeni immigrant who moderated a discussion on Islamic finance [in Sacramento].

The next eighteen paragraphs feature not a single voice to scrutinize this stunningly saccharine assessment and not a single hint of Islamic banking's many troublesome aspects: that unaccountable clerics determine which arrangements are Shari'a-compliant; that charitable donations required to "purify" proceeds have been used to fund terror in the past and could leave investors legally liable for attacks in the future; or that Shari'a banking is a modern invention designed by Islamist thinkers to propagate their radical, separatist ideology.

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Islamic banks ‘doing well’: Daily Nation

By NATION Correspondent Posted Wednesday, April 29 2009 at 18:38

The Central Bank of Kenya on Wednesday said Islamic banking had managed to bring more of the unbanked population into banking halls. Speaking at the first East African Islamic banking conference at a Nairobi hotel, Ms Rose Detho, who is in charge of bank supervision at the CBK said the concept had largely succeeded.

The first two fully-fledged Islamic banks, Gulf African Bank and First Community Bank were licensed mid last year. Five other conventional banks have introduced Islamic banking products. “The Central Bank is impressed that the Islamic banks that have operated for hardly a year have made milestones,” she said.

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Islamic banks have weathered sub-prime crisis well: Regulators: Asia One

By Gabriel Chen

ISLAMIC banks and financial institutions managed to avoid the fallout from the sub-prime crisis, largely because they refrained from investing in toxic assets that were deemed 'un-Islamic'.

And this prudence has put Islamic finance in good stead with investors looking for safe havens, said Professor Rifaat Ahmed Abdel Karim, secretary-general of the Kuala Lumpur-based Islamic Financial Services Board (IFSB).

The IFSB is an umbrella group of Islamic financial regulators. It was formed in 2002 and counts Saudi Arabia, Qatar, Indonesia, Bahrain, Sudan, Pakistan and Singapore as members.

Prof Rifaat, who is in Singapore for the IFSB summit this week, told The Straits Times yesterday that a lot of lessons could be learnt from the financial crisis.

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Islamic Banking and Finance: Historical Perspective and Future Prospects: Economistan

Islamic banking and finance had its major beginnings in the year 1975 with the establishment of the Islamic Development Bank. Islamic banking has flourished in various countries since then with Malaysia, Indonesia, UAE, Pakistan and Saudi Arabia being in the forefront. Islamic banking has also recently done rather well in non-Muslim countries with the reported size of UK Islamic banking overtaking that of majority Muslim countries like Pakistan. Islamic banking assets are thought to be anywhere from 700 billion dollars to 900 billion dollars as of 2009. The credit crunch that has affected much of the western world has not taken its toll on the Islamic Banks, mainly because of the nature of the underlying transactions which admonish Riba and encourage instead a partnership based approach. The result is that the actual profit or loss is shared with the shareholders rather than an arbitrary number called Riba or “interest” which they have to come up with to please the investors regardless of the market situation. In this way, Islamic Banking also helps in depicting the true state of the economy.

Islamic indices historically have also been outperforming the other indices with the Dow Jones Islamic Developed World Index outperforming the MSCI World Index consistently over the past few years. Growth in Islamic banking has also been stellar and it has been growing at a healthy rate of 15-20% per year according to estimates. Moody’s has projected that Islamic banking would expand to a total value of $4 trillion dollars in another five years. The reason to this growth can also be attributed to the western banks taking interest in the Islamic banking instruments. Lloyd’s bank in the UK spread Islamic instruments to all of its two thousand branches in 2006 from five branches a year earlier. HSBC, Standard Chartered and Citigroup are some of the conventional western banks which have invested in Islamic banking.

Islamic bonds called Sukuk have been....

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Can Islam Save The Economy?: RD

By Nathan Schneider

In the midst of a global financial crisis one sector has yet to suffer the fate of the rest. Islamic finance, or Sharia-compliant banking, offers strict moral guidelines for dealing with money. Trading debt and risky speculation are off-limits, as is investment in immoral enterprises like gambling, prostitution, and war profiteering. It might be time to get the muftis on the phone.

Governments worldwide are struggling to manage the global financial crisis, with no end to the downturn in sight. But at least so far, one sector has been unscathed: the $1 trillion-and-growing business of Sharia-compliant banking.

That’s right, Sharia. The same combination of medieval Islamic law and modern post-colonialism that makes the terrorist clique supposedly so hateful of Western freedoms. Where finance is concerned, most muftis—Islamic religious scholars—agree that God prohibits charging any amount of interest on loans. Trading debt and risky speculation are off-limits too, as is investment in immoral enterprises like gambling, prostitution, and war profiteering. Transactions should be highly transparent and risk, as well as return, should be shared by all parties. You can’t trap people into owing more than they can pay. Basically, most everything that caused the current mess isn’t allowed. “Given their constraints, they actually don’t hold any conventional debt or conventional mortgages,” explains Samuel Hayes, emeritus professor of investment banking at Harvard. “They don’t have any of these derivatives or outright subprime loans. There’s no doubt that they have weathered this better than the conventional banks.”

For a world in need of fast, creative solutions to a cascading crisis, might this financial subculture offer a way out? Duke University economist Timur Kuran calls for caution. “I think it’s going to be a year or two before we have enough data to really know if it is the case that the banks are doing better and what explains it.” One way or another, says Bill Maurer, an anthropologist at UC Irvine who studies alternative economies, “this is a really interesting moment for Islamic banking.”

Sharia-compliant banks began appearing in the 1970s, but the concept dates to mid-century in South Asia and the Middle East, as Muslims newly independent from European rule sought to create an Islamic identity that would permeate all aspects of life, public and private. The first banks were small partnerships and development initiatives. In 1975, the Islamic Development Bank was founded by 23 Muslim countries (now 56), combining a World Bank-style mission with interest-free loans to member governments. It lent legitimacy and visibility to the approach. That decade’s oil boom gave a jump start to a new crop of commercial Islamic banks, particularly in the Persian Gulf states. By the ’80s, Pakistan, Sudan, and Iran were making efforts to Islamize their entire economies.

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