Islamic finance manages over $500b assets

Bahrain Tribune - Islamic banking, with 15 to 20% growth a year, has emerged as one of the vital pillars of the global economic system. Islamic financial institutions (IFIs) are operating in over 75 countries, managing between $500 billion and $1 trillion assets, an economist and member of Bahrain's Parliament Dr Jassim Hussain said.

In Japan to present a paper on Islamic banking, the MP urged Japan, being one of the top industrialised economies, to join the global trend by adopting the Islamic banking model as an alternative and safe banking and financial system. He made a presentation at the Japan Institute for International Affairs dealing with Islamic banking opportunities in Bahrain.

The audience included professionals from diverse fields such as academics, investors and news agencies. The economist said that IFIs work under strict Shariah guidelines and are based on the basic principle that the money earns return once used in productive or real investment.

He said: "Islamic banking prohibits a guaranteed, predetermined rate of return, making the entire cycle from investment to returns more transparent and open, unlike the conventional way of baking where depositors get a sense of a certain level of returns at the time of deposit.

Islamic finance encourages risk sharing, promotes entrepreneurship, a connect based in creating a welfare state with equal opportunities for everyone and not for a select group of people in each society who holds wealth.

On the socio-economic level as to how investment can play a positive role in building a robust system, Shari'a prohibits investment in some activities such as gambling and liquor. "At the start of the year, some 300 IFIs are operating in 75 countries, managing some $500 billion, and there is a projection to reach a $1 trillion in the next few years.

Talking about Bahrain's experience, Dr Hussain said Bahrain Islamic Bank was set up 30 years ago - the first ever Islamic commercial bank was opened in 1975 in the United Arab Emirates - and this institution has set a benchmark for other new entities aspiring to become leading Islamic banks.

Total assets of Bahrain-based IFIs (retail and wholesale) 10 years ago amounted to $1.4 billion, increasing to $1.9 billion six years ago, still to $ 8 billion three years ago and $16.4 billion last year.

However, figures do not fully capture full activities of Bahrain-based Islamic institutions (Gulf Finance House's investments in different countries like $1 billion plus the Jordan Gate project).

As of last January, Bahrain boasted some 26 banks plus two special ones dealing primarily with property. Local, conventional banks offer dedicated branches (Ahli United Bank) offering al Hilal Islamic Banking Services since last October which has a separate Shariah board.

Mostly wholesale (investment), a few commercial global banks provide Shari'a-compliant products (window) like Citi and HSBC. Islamic banking products include murabaha (trade with a markup or cost plus financing) accounts for three-quarters of the Islamic financial activities, mudaraba (profit sharing), general investments, accounts for 10 per cent of Islamic financial activities, musharaka (equity participation), like joint ventures in ijara (leasing), salam (deferred payment or delivery of goods), sukuk (Islamic bonds) and now credit cards.

The concept of Islamic banking credit cards (with a one-time charge plus fee per transaction) was launched six years ago by Shamil Bank of Bahrain, yet no major breakthrough was experienced but the product is there all the same.