Islamic banking finds a new champion

Islamic banking is growing apace in the Middle East. In the past few weeks alone Emirates Bank International has announced the formation of Emirates Islamic Bank, and the initial public offering for the UAE's Amlak Finance included a conversion to Islamic banking.

For Islamic retail banking is growing in many directions. A presentation by the Kuwait Finance House to the FIRBC 2004 outlined a range of services from credit cards to mortgages and car loans. In the recent past none of these financial products would have been within the scope of Islamic banking.

This useful and interesting new conference organised by ex-Islamic bankers was opened by the UAE Minister of State for Finance and Industry, Dr. Mohammed Khalfan bin Kharbash, also Chairman of Dubai Islamic Bank, itself an institution that is unrecognizable to those who knew it a few years ago.

The general message from this event was two-fold. Firstly Islamic banking products have a strong retail appeal, and greater customer loyalty than conventional banking products. Secondly, for the banks themselves the availability of Islamic investment funds in the marketplace is a major added attraction.

But in order to access these funds, a bank needs first to be operating in an Islamic way. Thus the pressure on banks to convert to Islamic banking is a push-pull. There is the push of retail demand and the pull of a huge liquid pool of Islamic funds looking for a home.

It also used to be the case that recourse to Islamic banking practices was a way to beat the competition of international banks. But with most of the major foreign banks also now offering their own highly developed Islamic banking products, this is no longer the case.

However, as Head of Islamic Banking in Maybank, Malaysia's largest Islamic financial institution, Mohammed Ali Mohd Sarif told delegates to the FIRBC 2004, an Islamic identity can still reinforce a local undertaking.

On the other hand, the horizons of Islamic banking verge closer and closer to its conventional counterpart. Topics such as securitization of Shariah compliant asset-backed mortgages, and the pricing of home financing with floating rates, both on the agenda of the FIRBC 2004 show how the industry is moving.

Next week IIR's International Islamic Finance Forum will take up the baton, again in Dubai, with a broader agenda tacking commercial as well as retail banking. This is clearly an industry whose time has come.