The international Islamic banking industry must consolidate to create fewer, stronger and more competitive players that can challenge rival Western lenders, a leading industry group said on Wednesday.
There are about 300 international Islamic banks and financial institutions but they only make up 1 percent of global banking assets and many are undercapitalized, said a top official of the Islamic Financial Service Board, or IFSB.
"There is a need for big-sized Islamic banks. We don't have the likes of HSBC, Citibank or Standard Chartered," IFSB secretary-general Rifaat Ahmed Abdel Karim told reporters on the sidelines of an international Islamic banking conference in Kuala Lumpur, Malaysia.
The ISFB, based in Kuala Lumpur, outlines self-regulatory standards for Islamic banking based on Shariah law, which bans investments that pay interest or derive profit from alcohol, tobacco, pork, gambling or arms.
Islamic Banking is mainly concentrated in the Middle East and Southeast Asia but it is making its way into Europe and the U.S., Abdel Karim said, adding that demand for Islamic finance is growing since Muslims account for 1.6 billion, or 25 percent, of world population.
But Abdel Karim said that only one Islamic bank in the world, Al-Rajhi Banking and Investment Corp. in Saudi Arabia, has capital more than $500 million, and 10 others with more than $200 million.
"Islamic banks must realize that remaining small will not help. They need to grow to be competitive in the market, for better economies of scale and to be able to take on big projects," he said.
Abdel Karim also welcomed a plan by the General Council for Islamic Banks and Financial Institutions to establish a $1 billion Islamic mega bank, saying it will help boost the industry's market share in the international financial system.
The council said it hoped to launch the bank in 2006 and is considering Bahrain, Qatar, Dubai and Malaysia as possible host country.
Abdel Karim said the IFSB plans to release a 10-year blueprint to help Islamic states manage the Islamic financial sector in the areas of banking and finance, insurance and capital market by May next year.