Islamic banking comes of age

The International Islamic Finance Forum held in Istanbul last week by IIR Holdings brought together around 250 delegates and speakers from the upper echelons of the industry to debate the latest developments in Islamic banking.

What was most notable was how mainstream and establishment Islamic banking has become. The days of obscure theology and terminology have given way to a new type of modern banking, albeit with its own distinctive flavour.

The focus was far more on commercial aspects of the business and the introduction of new retail products. For example, National Commercial Bank proudly discussed its pioneering Islamic credit card, and laid out its ambitions to launch Islamic mortgages in the Kingdom before the end of the year.

Indeed, the practical applications of Islamic banking are on display from the moment an aircraft lands in Istanbul. The new airport terminal is a showcase for larger-scale Islamic finance from HSBC.

This highlights another phenomenon in the industry. The multinational banks are increasingly going into Islamic banking. HSBC, Citibank and UBS - a major sponsor of the IIFF under the guise of its Noriba Islamic banking division - have all made serious moves into Islamic banking.

The response of the smaller, local Islamic banks has been to become more aggressively commercial and more professional in their operations. This can only be for the good of the sector, competition being a good thing for service standards.

Dubai Islamic Bank, for instance, has become a highly efficient, modern retail banking operation in the last two years - and completely unrecognizable to those who knew the bank in the not so distant past.

However, the appeal of Islamic banking remains the same as it always has been. NCB Head of Islamic Banking Abdulrazzak M. Elkhraijy says 'Peace of Mind' is the biggest intangible benefit that Islamic banking offers its customers.

But this is more than the comfort of knowing that a bank complies with Islamic religious practice. For Islamic banking also equals low-risk, secure banking in the minds of many customers.

Islamic equity funds have performed well over the past three years, despite difficult financial markets, because of a conservative investment strategy that eschews debt. Equally, Islamic scholars abhor hedge funds, derivatives and swaps, all financial instruments that may yet cause the traditional banks problems.

Indeed, take away the religious base of Islamic banking, and you basically have a simple, savings institution which also provides credit facilities to match any traditional bank.

No wonder Islamic banking is growing in appeal. One only hopes that the arrival of the international banks in the sector does not dilute this basic virtue with complex financial structures.