BANKING: Islamic Banking
Asian Business, March 1999
Islamic banks adopt global portfolio
Speakers at this year's conference, to be held in Bahrain, will introduce
financiers to new opportunities in new markets.
Islamic banking, once little more than an exotic curiosity, is rapidly becoming
an important part of the global economy. The ambitious infrastructure projects
planned for many Muslim countries are bringing an increased need for finance,
and Islamic banks are expected to play an important role in some of these
Globalisation and the need for alternative financing will be the key issues
at the fourth annual Islamic Banking and Finance Forum, which meets this
month in Bahrain. The forum, which is hosted by the Bahrain Monetary Agency,
will be held at Bahrain's Le Royal Meridien Hotel from December 8 to 10.
Over the years the forum has attracted more than 1,000 delegates from over
30 countries, with over 200 banks and financial institutions taking part.
The three keynote themes this year are 'globalisation of Islamic finance',
'the new world economic order', and 'best practices and models in the global
financial markets'. Victor Hawken, chief operating officer of Islamic Banking
& Finance Forum (MEIDC), which is organising the event, says: 'Islamic
bankers have proved to be a major influencing factor in large infrastructure
projects, which top agendas across several Middle East and Far East nations.'
This year the conference is being taken beyond the Arab world, to a pan-Islamic
arena. Special sessions will focus on Bahrain's role as a major Islamic financial
hub; the opportunities for Islamic finance in Mindanao in the Philippines,
now that peace has generally returned to that once-troubled province; the
development of Labuan, a Malaysian island in the South China Sea, as an Islamic
off-shore financial centre; opportunities for Islamic finance in the Muslim
communities of North America; investment opportunities in the Chinese Muslim
province of Qinghai; and developments in Islamic finance in the former Soviet
Union states. Islam is the main faith in five of the central Asian states:
Kazakhstan, Kirghizstan, Turkmenistan, Tajikistan and Uzbekistan.
Although the main themes of the conference will be the new geographical areas
and emerging markets, conventional issues will also be tackled.
Topics on the agenda
Subjects for discussion will include Islamic infrastructure and project finance,
Islamic leasing and lease funds, Islamic fund management, Islamic real estate
investment, information technology for Islamic financial institutions, and
takaful, Islamic insurance.
Prominent speakers who have addressed the forum include Saudi Arabia's Prince
Mohamed Al Faisal Al Saud, chairman of Dar Al-Maal Al-Islami; Sheikh Saleh
Kamel, president of Dallah Albaraka group; Adnan al Bahar, chairman of the
Dubai and Jeddah-based International Investor; Dato' Ahmad Tajudin Abdul
Rahman, managing director of Bank Islam Malaysia; Dr SMH Adeli, governor
of Iran's central bank; Zainul Arifin, president director of Indonesian-based
Bank Muamalat; and Majid Al-Refai, chairman of Bahrain's First Islamic Investment
Last year's conference in Dubai, in the United Arab Emirates, was told that
the global assets of Islamic financial institutions exceeded US$60 billion,
compared with US$5.8 billion in 1975. Three new Islamic banks were founded
each year between 1975 and 1985. Today, there are 300 Islamic financial entities
-- 186 institutions and 114 banks -- in 25 countries.
Speakers in Dubai included Sultan bin Nasser Al Suwaidi, the governor of
the central bank of the UAE; Dr Saleh Malaikah, chief executive of Saudi
Arabia's Albaraka Investment and Development Corp; Justice Mufti Mohamed
Taqi Usmani, deputy-chairman of the Jeddah-based Islamic Fiqh Academy; Andre
Hovaguimian, director of the US-based International Finance Corporation;
and Dr Wan Mohamed Hasni Wan Sulaiman, president of Malaysia's Abrar group.
Topics covered last year included relations between central banks and Islamic
institutions, capital adequacy ratios and requirements, Shariah regulations,
fund management, equity and portfolio investments, and the role of international
institutions in Islamic finance. Soon after the conference, a joint venture
between a Kuwaiti group and a Saudi group set up First Islamic Investment
Bank in Bahrain. It launched a US$35 million two-month private placement
issue to high-net-worth individuals in the Gulf states, Malaysia and Brunei.
A spokesman said: 'This shows this is not an Arab venture but a pan-Islamic
FIIB's former chief executive, Majid Al Refai, said at the conference last
year: 'Islamic banking should not be seen as a niche, but as good as other
products. Currently Islamic banks offer short-term tools with returns of
5% to 6%. We are looking to make the quantum leap to medium-to-long term
products with returns of 15%, 20% and even 30%, like project finance and
venture capital. Our aim is to create credit-rated medium-to-long-term investment
tools with returns comparable with existing conventional products, so that
financial advisers the world over can advise their clients to invest with
us on the basis of returns, rather than because they are Islamic.'
As Islamic banks look to financing major infrastructure projects, this factor
will become more important. Infrastructure projects have become a feature
of international banking conferences over the past few years. The World Bank
says the developing world will need trillions of dollars to finance the kind
of projects necessary to keep the engines turning. The Asian Development
Bank said in 1994 that close to US$1 trillion will be needed over a little
more than a decade to finance the infrastructure needs of the Asian region
Clearly, term-lending institutions cannot be the sole providers of such large
sums. At the same time, the ideal instrument of infrastructure development,
bond markets, have yet to be exploited fully in the developing world, where
Islamic banks expect to play an increasingly important role towards it in
the coming years.
The development of a major gas field in Qatar, the construction of the new
international airport in Kuala Lumpur, and the development needs of southern
Africa, combine to create an infrastructure tab of close to US$250 billion.
The forum, which is the premier meeting of its kind internationally, will
provide a natural platform for interaction between the Islamic financial
community, conventional banks and financial institutions, government and
academia. Industry analysts expect it to promote the exchange of business
information, knowledge, and a greater understanding of Islamic financial
concepts and practices in the world.
Besides interactive meetings focusing on the latest developments in the Islamic
financial industry, MEIDC's Hawken expects discussions on new investment
opportunities in the emerging Muslim markets and model banking practices.
In addition, the prestigious Islamic Banking and Finance Excellence Awards
has a new award this year. The Deal-maker of the Year Award will go to an
individual investment banker or team using Islamic-based financial instruments
in a major project financing exercise.
The other leading awards are Banker/Financier of the Year and Lifetime Achievement
Award. Over a thousand alumni at the conference nominate candidates for the
awards. In 1996, the Life-time Achievement Award went to Sheikh Saleh Kamel,
president of the Dallah Albaraka Group, for pioneering the implementation
of Islamic Values worldwide. The Islamic Banker of the Year Award went to
Nabil Nassief, president and chief executive officer, Faysal Islamic Bank
As the recent economic downturn in some parts of Southeast Asia and the hammering
of some currencies and global stock markets have shown, the time has come
for products, concepts and ideas that take a longer-term perspective. Conventional
methods have worked in the past, but if the global economy is to sustain
its long bull-run and avoid the pitfalls of deflation or depression, new
and innovative ideas, which are ethically sound and conceptually co-operative
and collaborative, will be needed. Islamic banking alone cannot perform this
task, but any attempt at global recovery without including this vital, and
phenomenally-growing component of international finance, will be insufficient.
Islamic banks are spread across the world and can provide a wider perspective
than conventional banks, some of which are driven by short-term principles.
Islamic banks often respond to different economic cycles, and can look at
projects with a certain detached perspective, which insulates them from the
governing consensus of the financial community.
Like all banks, Islamic banks cannot run on anything other than sound business
principles. But Islamic banks bring a unique set of products to the table,
which can make the global financial industry more powerful at this critical
time of the world's economic history.
Solutions to some of the structural problems will inevitably take time, but
the Bahrain conference this month will take the dialogue further by introducing
Islamic financiers to new opportunities in new markets. Conventional banking
communities, too, will get the chance to see what the Islamic banking world
and its principles have to offer.
A dialogue of that nature can only make the world richer.