Al-Rajhi Bank CEO Abdullah S. Al-Rajhi, right, NCB CEO Abdulkarim Al-Nasr, left, Mutlaq Al-Morshed, executive vice president, corporate finance, SABIC, second from right, and Humayon Dar, MD, BMB Islamic, take part in a panel discussion on Islamic finance and banking at the Jeddah Economic Forum on Tuesday. (AN photo by Ghazi Mahdi)
Published: Mar 22, 2011 22:35 Updated: Mar 22, 2011 22:35
JEDDAH: The present status and future of Islamic economy, especially finance and banking, was the focus of deliberations on the final day of the 11th Jeddah Economic Forum on Tuesday.
The panelists of a session on Islamic finance and banking were of the view that Saudi Arabia, which has made rapid strides in Islamic finance, could be a role model in promoting it among both Islamic and even non-Islamic countries.
They said the global economic slowdown, witnessed in the past couple of years, was an eye-opener to most of the advanced countries as they felt that they might not have been in such a mess if they had adopted Islamic finance.
They all agreed that Islamic finance is growing but it needs a regulatory authority to ensure full Shariah-compliance.
Jeddah Chamber of Commerce and Industry Chairman Saleh Kamel felt that Islamic economy had not been treated fairly. "Islamic economy cannot find the place that is due to it unless it is introduced as a subject in schools and universities," Kamel said.
"It (Islamic economy) is ordained by Allah and the Prophet Muhammad (peace be upon him) and the rules and regulations are there to guard against malpractices like usury and conduct Shariah-compliant financial and banking transactions," Kamel said.
He said that Islamic banks had been in operation for 38 years but a shortage of experts had delayed their worldwide expansion.
"We require scholars and experts so that all the rules and regulations related to Islamic finance and banking are unified and individual banks or institutions do not have their own interpretations," he said.
He was, however, hopeful that the value of Islamic financial assets would reach $4 trillion from the current $1 trillion by 2020.
He appealed to the Saudi Arabian Monetary Agency (SAMA) to set up a Shariah control supervisory board in line with measures adopted in countries such as Malaysia and Sudan.
He hinted that the giant Islamic bank, Al-Kabeer Islamic Bank, will be launched by the end of this year.
Al-Rajhi Bank CEO Abdullah S. Al-Rajhi said the challenges include the lack of institutional framework, expansion of market and difficulty in managing short-term liquidity.
He agreed with Kamel that there is wide disparity in the application of Islamic banking principles.
"Every Islamic bank has its own Shariah board. That's why there is contradiction in the number of Islamic products, which reduces the confidence of customers. So, we have to unify Shariah parameters, which now number over 40," he said, emphasizing the need for a unified Shariah board.
According to Al-Rajhi, the volume of finance provided by Islamic banks in Saudi Arabia amounts to more than $100 billion.
Al-Rajhi said the recent royal decrees would add a major thrust to the Saudi economy in the coming years and ensured that the banking sector would support implementation of the decrees.
He also confirmed that all of the Kingdom's banking transactions are Shariah-compliant.
National Commercial Bank CEO Abdulkarim Al-Nasr said Islamic finance had expanded globally and not just in Islamic countries.
It had expanded from $260 million in 2000 to more than $1 trillion now and is expected to grow up to $4 trillion by 2020. Islamic insurance alone is expected to reach $25 billion by 2015.
"In fact, Islamic banking represents 95 percent of banking activities for individuals in the Kingdom. They represent 30 percent of the entire banking assets here," he said, adding that the recent global financial crisis had made Islamic banking more relevant.
Al-Nasr also shed light on services provided by Saudi banks to small and medium enterprises through the Kafalah program. More than SR1 billion worth of loans have been already given to young men and women, he pointed out.
Calling for applying social responsibility in Islamic banking, Zakat and waqf was Humayon Dar, managing director of BMB Islamic.
He said a majority of Saudis backed financing in line with Shariah principles.
"However, the future of Islamic finance products depends on its conformity with Shariah regulations, as that is the fundamental factor for its success," he said.
Ahmed Mohieldin Ahmed, secretary general for economic affairs, Islamic Chamber of Commerce, and Iqbal Khan, CEO of Fajr Capital, moderated two separate sessions on the future of Islamic finance and banking.
Mutlaq Al-Morshed, executive vice president, corporate finance, Saudi Basic Industries Corp. (SABIC), also gave an overview of how SABIC was committed to Islamic finance and banking transactions. He pointed out innovative ideas such as the CDS (credit derivatives) that J.P. Morgan launched recently would strengthen the Islamic finance sector.
The legal framework needs to be standardized, he added.
He also referred to the need for experts of Islamic finance who understand Shariah and finance.
"There are a lot of Shariah scholars and financial scholars. But they don't seem to elated to each other. However, it is being pursued and requires time to be fully witnessed, he added.
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Asadullah Syed
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