DAMASCUS, March 15, 2006 (IslamOnline.net & News Agencies) - Islamic banking is growing rapidly worldwide with the Gulf region grabbing the lion's share, the head of the General Council for Islamic Banks said on Tuesday, March 14.
"We used to see banks with $40-$70 million capital each; now we hear of $1 billion and more," Izzedine Khojah told Reuters in an interview on the sidelines of an Islamic banking conference in Damascus, Syria.
Assets of Islamic banks rose by an average of 24 percent a year over the last decade and are at least expected to maintain this growth in the next few years, he said.
"Islamic banking has proved the ideal model for the needs of Islamic societies; we are no longer talking about fragments.
"Governments and central banks have taken the lead in supervising Islamic banks and encouraging growth of the system," Khojah said.
Banks and governments in the Muslim world have recently set up an arbitration authority and an organization to streamline accounting standards of Islamic banking.
A rating agency has been also established, Khojah said, adding that work is underway to harmonize principles under which the banks operate, with each bank still having its own religious supervisory body.
Western Appetite
Khojah said that the impressive strides made by the Islamic banking has whetted Western appetite to expand its Shari`ah-compliant dealings.
BNP Paribas has recently expanded its operations in Islamic finance and place it at the center of the French bank's Middle East retail strategy, Reuters said.
Deutsche Bank, Germany's biggest bank, is also planning to expand in producing services and products aimed at Muslim clients.
In 2003, HSBC banking group became the fist high street bank in Britain to offer mortgages and current accounts in accordance with Shari`ah.
Islamic banking operates by sharing profit or loss between the bank and its clients, instead of interest, which is forbidden by Shari`ah.
Under the system, the bank works closely with clients on financing, such as jointly setting up projects with the aim of selling them to third parties.
"Success came through raising the mantra of sharing profit and loss and furthering Islamic principles," said Khojah.
Improving
Khojah said that the fast growth of the Islamic banking, still a nascent industry, has not been without hitches.
"There are definitely challenges. Conventional banking has been around for four centuries and we are only three decades old," he said.
"We now have an industry with its own standards and tools and supervision that is being improved."
Khojah said the goal now is to improve quality of services, seek specialization and come up with new products at lower cost.
"The objective of Islamic banking was to prove itself," he said.
There are an estimated 300 Islamic banks and financial institutions worldwide holding $300 billion in assets that are predicted to grow to $1 trillion by 2013, Khojah said.
Deposits grew by 13.7 percent per year from 1998-2003, while in the Gulf deposit growth reached almost double that in the last few years.
Profits in the system grew by 50 percent in 2003 and return of equity was over 15 percent.
The fastest growing region has been the Gulf Cooperation Council, a region seeing windfall oil revenue, with 60-70 percent of new deposits there going into Islamic banks.