Islamic financing blossoms as Qatar projects take off

Gulf Times: Islamic financing is finding more takers in Qatar, which has a significant need for large-scale funding due to projects worth an estimated $130bn breaking ground in the next few years.

A majority of big ticket projects in energy, industry and infrastructure in the country have seen increased participation by Shariah-based lenders who are gearing up for even more as the need for funding becomes greater.
Full scale Shariah-based lenders as well as Islamic branches of conventional banks have seen greater activities in 2007 and in the first half of 2008.
According to Qatar Central Bank estimates, the local Islamic banks had a 17% market share in the total assets of the Qatari banking sector last year.

Moody’s Investors Service said Gulf governments might take bigger stakes in Islamic financial companies to gain more control over the industry as demand soars for investments and financial services complying with Islamic law during an oil boom.
Governments in the United Arab Emirates, Qatar and Saudi Arabia have set up new Islamic banks to comply with Islamic law, or Shariah, to ensure they retain an ethical image, the credit rating agency said.The $700bn Islamic finance industry has the potential to surge to as big as $4tn, it said.

Islamic financing will find even greater acceptance among non-Muslims because of the “participatory” nature of lenders in Shariah-based financing, said QIB chief executive officer Salah Mohamed al-Jaidah.“We more than lend in Islamic financing. By lending, we actively participate in a project. This ensures its satisfactory conclusion,” he said.

“We have been growing steadily and are confident of achieving greater heights in the coming months. We will find more acceptance among those who have not been traditionally using Shariah-based financing. This is because of the straight forward financing pattern involved in Islamic banking,” al-Jaidah said.

He said Islamic banking continued to maintain an impressive growth rate in both the local and international markets and has now expanded its reach to over 75 countries. In 2007, some 300 Islamic banks and financial establishments had collectively managed $300bn worth of investments.

“Demand for Islamic banking products is expected to reach $4tn in five years. Islamic bonds have lately peaked to a turnover of $82bn and is expected to exceed $150bn in the next three years,” he said.

Qatar’s prominent Islamic banks, QIB, QIIB and Masraf Al Rayan, and the Islamic divisions of QNB, Doha Bank Commercialbank, and Al Khaliji have all concluded many Shariah-based transactions last year and in the first half of this year.
Early this year, two leading Islamic banks - QNB Al Islami and Qatar International Islamic Bank – have joined hands with Sudan’s Al Salam Bank and extended $50mn to Sudanese Telecom Company (Sudatel).Some of the major projects in Qatar in 2007 had a significant slice of Islamic financing, sources said.

The year saw Qatar Airways employing the Islamic mode of financing using the Ijara tool. Islamic financing was exclusively used for the $3.5bn Al Waab City Project launched by Nasser bin Khaled & Sons Group.

In 2007, local Islamic banks and Shariah-based divisions of conventional banks have participated in the Qanat Quartier Project, a $600mn closed investment fund that was created for developing the water channel at The Pearl Qatar.
Two other projects - $150mn sukuk for Salam Bounian’s The Gate project at the West Bay and Qatar Electricity & Water Company’s expansion also had a significant slice of Islamic financing last year.

An Oxford Business Group review recently said a combination of conventional and Islamic issues could make Qatar a regional leader in the debt market. Quoting Moody’s it said Qatar will be one of the top corporate bond issuers this year with a planned $15bn in issues.