Islamic finance pushes new boundaries

Pascal Duval, managing director at Russell Investment Group, examined the Sharia-compliant stock universe and the market for Sharia-compliant investment funds as part of an effort to diversify his company's offerings.

"We examined the Sharia-compliant stocks which are part of the Russell Indexes universe, and asked the top fund managers to bring their expertise together with Islamic investment standards. One of the top guys is McKinley Capital Management in Anchorage, Alaska. This proves that Islamic finance is not only at home where you find sun and desert, but also clouds and snow," Duval said.

The times are clearly over when Islamic Finance was concentrated on the transcontinental axis between Kuala Lumpur, Dubai and London. The newest candidate to encourage Islamic Banking is Uganda. The Eastern African state received three applications from Islamic banks in February, according to a report by Bloomberg.

Titus Mulindwa, the bank's deputy legal counsel, said the country could see the establishment of its first Islamic financial institutions. Around 12 % of the 33 million Ugandans are Muslims.

In order to establish a proper legal framework for Sharia banking, Kempala has sought support from the Central Bank of Malaysia.

Qatar issues directive on Islamic finance

Meanwhile, the Central Bank of Qatar has implemented a new directive which orders banks to be run either conventionally or in line with Sharia. In other words, conventional banks can no longer offer Sharia-compliant products through Islamic windows.

Banks affected by the directive include the country's largest lender Qatar National Bank, Commercial Bank of Qatar (CBQ), Doha Bank, Al Ahli Commercial Bank and International Bank of Qatar. The move brings back memories of the Glass-Steagall-Act act of 1933 when the US separated commercial banks from investment banks, as a result of the Great Depression of 1929. The Glass-Steagall-Act was repealed in 1999, but was mentioned in public discussions on how to tackle the financial crisis in 2008/2009.

Bahrain has lost its attraction as a financial hub due to the ongoing civil unrest in the kingdom. Media reports estimate that wealthy customers withdrew some 15% - 20% of their assets from accounts in Manama. Bahrain's King Hamad Bin Chalifa ordered a three-month long state of emergency, triggering banks to shift part of their staff to Dubai.

French banks likely to adopt Islamic finance

France is also expected to see the first Islamic standalone banks within the next two years. According to an enquiry done by Paris Europlace, an initiative to promote France as a banking hub, the Fifth Republic has the potential of gaining 10% of the global volume of $1trillion which is managed in line with Sharia.

Even in the Middle East there are still some white spots on the map. In Egypt the size of Islamic Finance "is insignificant, as it did not get political support under the former Mubarak-regime", says Ashraf Talaat, Islamic Banking Manager at National Bank of Egypt.

The largest Arab country in relation to total population (82 - 85 million people) could be the next hotspot for Sharia-banking "especially in the retail banking segment for the lower income class," Talaat says.