Islamic banking 'in its infancy'

Turkish Daily News

As the U.S.-based credit crunch affects economies worldwide, there is a growing interest toward so-called “Islamic finance,” known by its strict prohibition of interest (riba) and “making money from money.”

The growing Islamic finance pie attracts non-Muslim countries too, as was seen by Britain's announcement in April that sukuks, or Sharia-compliant bonds, will be issued for the first time.

As London aims to be the leading Western center for Islamic finance, Istanbul hosted the “Leaders In Islamic Finance” conference last week. Speaking to the Turkish Daily News, Najib Fayyad from Unicorn Investment Bank compared Islamic banking in Turkey to “Malaysia in the early 80s.”

“The growth of Islamic finance globally is 15-17 percent year-on-year,” he said. “In Western markets, it is also attracting a lot of attention.”

Explaining the dynamics behind this growth, Fayyad pointed out to high oil prices and “phenomenal growth” in Gulf countries.

Islamic banking in Turkey:

“In Turkey, Islamic banking is in its infancy,” Fayyad said. “A lot of clients do not fully understand what it is about. Thus, we have to show the market the benefits of this new source of funding that could help support the growth of Turkish economy.

Answering a question on Turkey's participation banks – such as Bank Asya and Albaraka Türk – Fayyad said their share in the financial system is “basically negligible.”

“They have been trying to promote the sector, but are only focusing on the traditional Islamic product, which serves the niche,” he said. “To develop the market, you need to bring in the expertise and different financial products.”

The most popular of these products, sukuk, the Islamic bond, is not allowed in Turkey. Fayyad claimed Turkey should allow sukuks to be treated as conventional bonds. “The legislation [on participation banks] did not go anywhere,” he said. “Our duty is to try and educate the market about the benfits of Islamic finance.”The global volume of sukuks reached $2 billion a month in 2007.

Unicorn Investment Bank, centered in Bahrain, has “strategically invested in Turkey,” he continued. “We have offices in Dubai, Kuala Lumpur and Chicago. In January last year, we acquired Unicorn Capital and now have more than two dozen on the ground in Istanbul.”

Commenting on the global liquidity crunch, Fayyad said “the existing liquidity available in Islamic banking could create a new source of funding to support the growth of companies.