Islamic banks 'need mergers to fill in West gap'

Small and medium-sized Islamic banks may need to merge if they want to become bigger regional players capable of filling the funding hole left by shrinking Western banks, the head of Islamic finance at Deutsche Bank, told Reuters.

‘There are mismatch challenges,’ Salah Jaidah said on the sidelines of the Euromoney Islamic finance summit in London.

‘Their size, their appetite for long term funding, their ability to finance at competitive pricing. I see this as a big challenge and not happening already now,’ he added.

Most Islamic banks in the Middle East and North African region hold less than $13 billion in assets. Conventional banks, by comparison, hold an average of $38 billion in assets, a report by Ernst and Young estimated.

In the past, said Jaidah, it was the international banks which led oil and gas development and infrastructure projects in the region because they had the balance sheet, pricing mechanisms and appetite for long term funding.

Whilst Islamic banks might not immediately be able to face the challenge, Jaidah believes that within time they will be able to reposition themselves.

‘They might raise capital, might have more competitive prices and ultimately there might be some mergers between small-to-medium sized banks who want to become bigger players regionally.’

The GCC region has over 100 Islamic banks, ranging from Al Rajhi Bank of Saudi Arabia with a $25 billion market cap to small unlisted lenders, a Deutsche Bank report published in November said.

Deutsche Bank selected a list of potential winners which included Al Rajhi – the world’s largest Islamic bank – and Alinma bank in Saudia Arabia, AMMB Holdings in Malaysia and Bank Mandiri in Indonesia.

The idea of a so-called Islamic ‘mega-bank’ has already been touted in the region by Bahrain-based Al Baraka banking group .

Islamic finance prohibits the lending of money for interest and other activities such as speculation that violate religious principles.

Deutsche Bank, which first established a presence in the UAE in 1999, says that despite the current global economic turmoil there are still opportunities within the industry.

‘With the changes taking place in Mena region and our eagerness to reposition ourselves as a lead player within the industry, I expect that the portion of profit and earnings will be lucrative and will grow year after year,’ said Jaidah.

He sees encouraging signs from Oman, home to around 3 million Muslims, where the central bank last year reversed its secular stance on finance, allowing Islamic banks and subsidiaries to establish themselves in the country.

There might also be new geographic openings in North Africa, following the upheaval in the region and countries such as Turkey where the government plans its first-ever issue of Islamic bonds this year.

Globally, Islamic bond issuance rose to $23.3 billion last year from $13.9 billion in 2010, according to Thomson Reuters data.

On the corporate front, Deutsche Bank, which has advised on deals including Saudi Aramco Total Refining and Petrochemical Company’s (Satorp) $1 billion sukuk also sees more non-Islamic corporates tapping Islamic finance.

Islamic banking draft moots five-member Sharia board

MUSCAT: A five-member Sharia board, exclusive branches for window operation, clear cut segregation of conventional and Islamic banking with separate teams of people and accounts and a 12 per cent capital adequacy ratio are the main highlights of the Islamic Banking Draft Framework (IBRF) presented by the Central Bank of Oman before chief executives of banks in Oman.

CBO has organised a consultative meeting for top officials of banks on January 25 for presenting the draft Islamic banking rules, which the apex bank’s consultants Ernst & Young termed as a ‘unique model.’ The banking regulator is still working on the regulation, and may incorporate changes on the basis of feedbacks from banks, before announcing it. Ernst & Young has advised the CBO on fixing of lending limits, single borrower limit, writing of rule books, procedures for reporting structure for Islamic banks and formation of Sharia board.

Of the five-member Sharia board, three should be experienced Islamic scholars and two should be from relevant field, either a professional in Islamic law or Islamic accounting, chief executive officers of two leading banks, who attended the consultative meeting, told Times of Oman. CBO’s draft regulation also stipulates on separate branches for Islamic banking window operation of conventional banks.

“There needs to be a separate team of people for accounts, information technology, marketing and compliance for Islamic banking line of business. There is also a separate head for Islamic banking. However, the back office support can be common for conventional and Islamic banking.

The whole idea is to create a perception among general public that these are two distinctly different lines of business,” said a chief executive of a bank, who does not want to be named. The draft regulation also insists on a 12 per cent capital adequacy, with a minimum paid up capital of RO10 million for starting window operation.

Another major suggestion for window operation is that funds can be pumped into Islamic line of business by a conventional parent bank, but Islamic banking operation can not transfer money for using it in conventional banking. “This could create problems at the macro-level, at least initially.

For instance, if all banks put together transfer RO1 billion into Islamic banking initially and in case half of the total funds can not be deployed due to lack of demand for credit, then the money can not be transferred back to conventional line of business for effectively deploying in the financial system,” noted another CEO of a bank, who viewed it on a macro economic level.

Another major concern expressed by bankers is the lack of availability of Sharia scholars to become board members of Islamic banking. “Everybody is getting into Islamic banking now. We are talking about 30 Sharia scholars. It is difficult to get people with relevant experience and it is going to be a challenge.

Even the region does not have that many people. This is what we are discussing with the Central Bank of Oman,” noted the official. It is also not clear whether a Sharia scholar can be a member of two boards.

Bankers also expressed their concerns on segregating risk management for Islamic banking line of business from conventional banking. “At the end of the day, risk is the same whether it is Islamic banking line of business or conventional line of business. And therefore, it should be on the parent bank and not separate it for Islamic banking,” noted the banker.

Sources also noted that there will be severe competition, with the imminent entry of two Islamic banks.

Islamic banks profitability up 58% in Q1FY12

KARACHI: The profit of Islamic banking industry (IBI) reached Rs 8 billion by end of the first quarter of 2011-12, showing growth of over 58 percent, as earning’s growth rate of conventional banks having Islamic banking branches is significantly higher than the growth rate of full-fledged Islamic banks.

The study ‘Islamic Banking Bulletin July-September 2011’ released by the State Bank of Pakistan (SBP) revealed that the share of full-fledged banks in overall profit of IBI though declined marginally over this quarter still constitutes major share (55 percent share) of overall profit of the industry.

The growth in profit during the said quarter is relatively lower than the growth rate of the last quarter (100 percent). However, the significantly higher growth rate of the last quarter can be associated to the base effect.

IBI continued its positive trend of earning as indicated by the rising trend in return on assets (RoA) and return on equity (RoE), both these ratios though didn’t show any significant change over the quarter under review for the overall banking industry.

It is also worth noticing that for IBI ‘net mark-up or profit income to gross income’ indicated a decline while ‘non-mark-up or profit income to gross income’ showed an upward trend, which is in contrast to overall banking industry norms.

As of end September 2011, the total assets of the IBI stood at Rs 568 billion, constituting 7.3 percent share of overall banking industry.The deposits of IBI reached Rs 463 billion during the quarter under review and its share increased to 8 percent of the overall banking industry from 7.6 percent in the last quarter (April-June 2011); the yearly basis growth of the deposits was almost 37 percent.

However, investments growth decelerated while financing witnessed retrenchment compared to the previous quarter. The deceleration in growth of investment can be explained by the non-issuance of any new Sukuk during the quarter while the retrenchment in financing is due to the business cycle of most corporate clients as well as the overall economic conditions of the country.

The industry witnessed rising non-performing financing (NPF) during the period under discussion reaching Rs 15.7 billion from Rs 14.8 billion during the last quarter, even so the IBI continued to achieve higher profit and increase in earnings.

The Islamic banking branches’ network increased to 841 branches from 799 as at the close of the last quarter. By opening 42 branches during the quarter the industry also achieved 62 percent of its planned annual branch expansion plan for 2011.

In line with the past trend these additional branches are more concentrated in Punjab (23) and Sindh, which constitute 78 percent share of overall network of the industry. Among banks, Meezan Bank Limited has remained prominent in expansion of its network with an increase of 20 branches during the said period.

However, the industry still seems reluctant in expanding to second and third-tier cities.The assets of IBI reached Rs 568 billion as compared to Rs 560 billion in the last quarter, registering a growth of 2 percent during the quarter under study; the growth is significantly lower than that of the last quarter, SBP report said.

It is important to note that assets of full-fledged Islamic banks witnessed a decline in growth rate from 10 percent in the last quarter to 3 percent in the quarter ended September 2011, while Islamic banking divisions (IBDs) of conventional banks contracted by 1 percent over the period under study in contrast to 17 percent growth in the last quarter mainly attributable to the category of other assets.

The financing of IBIs retrenched by almost 6 percent as it dropped to Rs 177 billion by end of the quarter under study from Rs 188 billion in the last quarter. This fall in financing is in line with the trend of overall banking industry and also with the usual trend of IBIs.

In general the business cycle of most industries including textile (the major shareholder of financing of IBIs) enable industries to retire major portion of their financing in third quarter (from July to September).

This can also be seen by looking at the sector-wise financing of IBI, as the corporate sector that comprises more than 70 percent of the financing recorded negative growth of more than 5 percent. The decline in financing share of industries like textile, sugar, shoes and leather garments etc also support the premise of drop in financing due to nature of their business cycle.

IBI’s investment reached Rs 236 billion in the quarter ending September 2011 from Rs 231 billion in June 2011, registering a growth of only 2.2 percent in contrast to the growth of 19 percent during the last quarter. The lower growth of investment during the quarter is primarily attributable to non-issuance of government of Pakistan’s Sukuk.

However, the available government’s Sukuk in the market remained the major investment avenue for Islamic banking institutions particularly for IBDs. The asset quality of the industry deteriorated marginally with non-performing financing (NPF) increasing from Rs 14.9 billion to Rs 15.8 billion during the quarter under study. The industry witnessed Rs 0.8 billion increase in the category of substandard while Rs 0.2 billion in category of doubtful.

However, this quarterly rise in NPFs is in line with the quarterly growth of NPLs of the overall banking industry. The yearly basis growth rate of 16.8 percent in NPF is lower than that of last quarter, however, the quarterly growth rate (6 percent) is higher than that of the previous quarter indicated by the rising trend of NPFs to financing as well as the net infection ratio.

However, both mentioned ratios are still below than the overall industry average (almost half) hinting at the cautious approach of Islamic banks.Deposits of the industry reached Rs 463 billion by end of the third quarter (September 2011), increasing from Rs 452 billion by end of the last quarter (June 2011).

However, the growth rate witnessed a decline – both annually and quarterly. It is interesting to note that despite the fall in overall growth rate of deposits the category of fixed deposits of customers witnessed a significant rise in its annual and quarterly growth rates from 31.8 percent to 36.5 percent and from 6.3 percent to 7.5 percent, respectively.

Islamic finance unpacked

THE National Treasury is considering issuing Islamic bonds and has asked interested banks to submit bids. Some local banks and the JSE already offer sharia-compliant financial instruments. These include the JSE Shariah All Share [JSE:J203] index and the JSE Shariah Top 40 – (Tradeable) [JSE:J200].

Other instruments include Mudarabah, a form of investment partnership between banks and businesses that shares the risk and losses. There is also Murabah, a transaction in which the bank buys the asset then immediately sells it to the customer at a pre-agreed higher price payable by instalments.

Kokkie Kooyman, head of Sanlam Investment Management: Global, said the Treasury’s Islamic bond issue would be part of a bid to “tap into” the unds from the Muslim countries that are shariah-compliant.

“I am sure this was at the request of those Middle Eastern countries because SA has a small Muslim population,” Kooyman told Fin24, adding the shariah products and funding are made attractive by the fact that they are not interest rate sensitive.

FNB Islamic finance offers shariah-approved banking options that are not limited to Muslims. They help FNB clients manage their day-to-day finances, whether they need an account for personal use or a number of products for their business.

Standard Bank Group [JSE:SBK], Africa’s biggest bank by assets, does not offer Islamic banking services in South Africa yet, according to Erik Larsen, the head of media relations at the bank.

In 2010 the bank launched its first Islamic savings and current account in Tanzania. In July last year Stanbic, a unit of Standard Bank, won approval from Nigeria’s central bank to provide Islamic banking services there.

Nedbank Group [JSE:NED], South Africa’s fourth-biggest bank, does not offer any Islamic banking products in South Africa. Absa Islamic finance offers businesses current and retail accounts. Its offerings range from savings, investments, term deposits and commercial asset finance.

Kooyman said the sharia-compliant offerings are worth pursuing because the end result or return is the same as that of conventional banks. “The returns are also not much different for ordinary investors,” he said. Pros and cons But Islamic banking, like conventional banking, has its advantages and disadvantages.

In terms of banking charges, clients of Absa Islamic banking and FNB Islamic finance pay the same fees as Absa and FNB clients banking conventionally; both banks are well known for charging high fees. In Islamic financing, loans for a house or a car offer fixed repayments, which are an advantage to many. This is not the case with conventional banks.

Banking experts said the introduction of more Islamic finance products into South Africa would improve the size of the economy. They added this would also help diversify the banking sector’s funding and investor base.

Steve Meintjes, a senior banking analyst at Imara SP Reid, told Fin24: “If people that have been using Islamic banking have been happy all the time, let us have (more) of it.”

Meintjes said: “The SA economy needs more finance. Islamic banking will enhance the productive capacity of this economy.” He warned, however, that investors who are interested would have to do a bit of homework to understand the products on offer.

Tom Winterboer, a banking analyst at PwC, said Islamic finance products can be accessible to investors beyond the Muslim population. Only 2% of South Africa’s population is Muslim but the demand is coming from non-Muslims, according to Absa.

“It must be a good thing to happen to South African investors. It is a different principle from the domestic finance we have come to know,” Winterboer said, adding however that it needed a different expertise. “But South African banks have this expertise.”

The government is also keen on opening the doors to Islamic finance banking in South Africa. It has proposed a tax amendment in a bid to put Islamic banks in South Africa on an equal footing with conventional banks.

Qatar Islamic banking directive to set example for other markets

The deadline of Dec. 31, 2011, as per the directive issued by the Central Bank of Qatar (CBQ) in January 2011 requiring the country’s conventional banks which have opened Islamic banking windows to close them down, has passed almost unnoticed.

Despite the initial outcry at the time of the announcement of the directive stressing that it was too arbitrary and the grace period was too tight, there has been no upheaval of the Islamic finance industry in the emirate. Some Islamic bankers are now arguing that the move was required to stem the alleged rampant co-mingling of conventional and Islamic funds at some of the Islamic banking windows, and that the Qatari Islamic banking sector has been successfully re-aligned and consolidated.

The successful implementation of the directive in Qatar could well have implications for other markets in the region and beyond where Islamic banking windows are prevalent. The clear message of the directive is that dedicated standalone Islamic banks are preferable to half-way houses where co-mingling and all sorts of compromises are possible if not the norm. They also give greater legal, regulatory and Shariah compliance clarity and comfort to those depositors and investors interested in Islamic finance.

The affected banks included the Al-Islami window of Qatar National Bank (QNB), the largest bank in the emirate; Commercial Bank of Qatar; Doha Bank; HSBC Amanah; Ahli Bank; Al-Khaliji Bank and International Bank of Qatar (IBQ), which between them had 16 Islamic banking branches in Qatar.

On Jan. 1, 2012 it became clear that only one such window, Al-Yusr of International Bank of Qatar, was acquired by two local Islamic banks — the retail banking assets and business was acquired by Barwa Bank, the newest of the Qatari Islamic banks, while the corporate banking assets and portfolio was acquired by Qatar Islamic Bank (QIB), the largest Islamic bank in the emirate.

The other banks had wound down their Islamic banking window operations complete with removing all signage and of course not opening any new accounts or businesses. Existing Islamic banking customers were in some cases given the option of switching to the banks’ conventional banking business or in other cases to continue payments until affected Islamic financing facilities matured.

An unrepentant CBQ Gov. Sheikh Abdullah bin Saud Al-Thani as late as mid December 2011 warned the affected banks that the directive was “irreversible” and that they must comply with its provisions. In his keynote speech to the 8th International Conference on Islamic Economics and Finance (ICIEF) which was held in Doha in December 2011, Al-Thani articulated the reasons behind the central bank’s directive, which he confirmed is irreversible.

The Islamic Banking Windows, according to Gov. Al-Thani, made it difficult for the banking regulator to effectively implement its monitoring and supervision of these windows.

This issue could not have been highlighted more aptly during the acquisition of Al-Yusr’s Islamic Retail Banking business. As the first such transaction to be closed in the region, albeit under Qatari law, there were some legal and other regulatory challenges which UK law firm, Eversheds, which acted for Barwa Bank, successfully navigated through within the provisions of existing Qatari legislation.

“The IBQ window was not a separate legal entity. As such, its assets and liabilities were a part of the conventional bank. We therefore had to consider how best to separate and then package and transfer these assets and liabilities. There were also challenges concerning transition services that were required post completion to serve the transferring customers,” explained Amjad Hussain, partner and head of Islamic Finance at Eversheds, in a recent interview.

The central bank also found that the coupling of conventional and Islamic banking activities at the same institution, undermined competition and transparency in the affected banks. At the same time, there is much confusion over the balance sheet treatment of the assets and liabilities of the Islamic banking windows in the financial reports of the conventional banks, which are not separated. As such this has implications for the risk management process of the institution.

Al-Thani gave the thumbs up to the Qatari Islamic banking industry which boasts four Islamic banks — Qatar Islamic Bank, Qatar International Islamic Bank, Masraf Al-Rayan and Barwa Bank. These banks, he added, have a crucial role in the country’s banking sector and economy, in compliance with the objectives of the Qatar Vision 2030 and its first application through the First Strategic National Development Project 2011-2016.

He reminded Qatari Islamic banks of their partnership role in financing economic development and projects in the country, and stressed that he was confident that the Qatari Islamic banks will rise to and are capable of taking up this challenge together with their conventional counterparts. The Islamic banking sector has a 20 percent market share of the total banking industry in Qatar, which has four dedicated standalone Islamic banks.

It was way back in 2005 that the CBQ allowed conventional banks to launch Islamic Banking Units (IBUs), which have contributed to the growth of the sector and to the profitability of the banks, and which have attracted an estimated customer base of just under 100,000.

Eversheds’ Hussain rejects any notion of arbitrariness in the action of the CBQ in issuing the directive. The action, he contended, is “part of a wider process of supporting and shoring up the banking industry in Qatar. You have to look at it in the context of the proactive approach of the central bank during the recession when it helped a number of local banks to remove some of the toxic debts that they had exposure to. The CBQ is also making sure that there are enough opportunities for all the market players.”

Previously, the Islamic banking windows were barely competing because of co-mingling issues and because they were able to offset overheads through the conventional banks. There was a feeling that the market was not as transparent as it could be. In addition to regulatory issues, the central bank had to deal with two separate businesses dealing with different banking activities – Islamic and conventional.

“I believe competition was an issue, because the pure Islamic banks were seen to be at a disadvantage. The Islamic banking windows at the conventional banks were able to use backroom services in their banks. There were also regulatory and corporate governance concerning how manage different banking platforms under one roof which is what the conventional banks were trying to do. This resulted in a culmination of issues which the CBQ is trying to address in its efforts to improve out the banking sector,” explained Hussain.

Islamic banking faces liquidity risk: Expert

Doha: Islamic banking sector is increasingly facing liquidity risk across all geographical regions. The situation is more challenging in the GCC region, said an expert.

He called for the industry leaders and the regulators to create new instruments and develop fresh policy tools for  the liquidity risk management in the Islamic industry sector.

Dr Salman Syed Ali of Islamic Research and Training Institute, Saudi Arabia, cautioned that the Islamic banking sector might also go the way of conventional banks, unless effective tools are not in place immediately.

Dr Salman, who was in Doha to attend the International Conference on Islamic Economics and Finance, told The Peninsula: “The structure of liquidity of Islamic banks have changed significantly over the years.  From an era of liquidity surplus in the beginning of the decade Islamic banks are now in the era of liquidity shortages. In general, the banks have moved from a position of positive gap to a negative one or from a negative gap to a more negative one.”

The level of liquidity in Islamic banking has been decreasing while liquidity risk has been increasing in all geographical regions over the past decade. The risk has further increased after the global financial crisis.

Contrary to the general perception, the liquidity of Islamic banking industry in the GCC is lowest with highest liquidity risk when measured by liquidity ratio and financing to deposit ratio.

There has been a major structural change in the maturity profile of assets and liabilities of Islamic banks between the years 2000 and 2009 from a position of positive short-term maturity gap to a negative gap.  This, according to Dr Salman, is a strong indication of a liquidity risk.

In comparison with the conventional banks, the Islamic banks, despite downward trend in their liquidity ratio, are holding much higher proportion of liquid assets.  Even during the financial crisis the liquidity in Islamic banks was more than twice the liquidity of conventional banks. This, among other factors, may have helped Islamic banks to ride out of the crisis.  But things are changing in the industry.

For want of updated Islamic instruments for liquidity management, the fully fledged Islamic banks face more difficulties compared to the conventional banks and the Islamic banking windows of conventional banks. A comprehensive review liquidity management practices and policies of Islamic industry is an urgent need.

“Out of the box thinking is needed to come up with solutions.  Researchers and policy makers need not confine their thinking within the present model of commercial banking and the set-up of the existing financial sector”, he said.

Among the GCC countries, Kuwait had consistently low liquidity ratio over the period. UAE is the country where liquidity ratio dropped most and remained lowest during the global crisis.  Among other countries, Jordan has the highest liquidity ratio consistently since 2004 followed by Malaysia.  The liquidity ratio in Sudan has been consistently showing a downward trend since 2004.

An important measure of liquidity risk is the Financing to Deposit Ratio – a situation that captures the relationship between changing nature of demand for financing and deposit gathering ability of banks to fund that demand.  This ratio is quite high in the GCC and Mena when compared to other regions,  Dr Salman said.

Islamic windows of conventional banks to go QCB

Doha: Qatar Central Bank (QCB) will go ahead with its decision to close down the Islamic windows of conventional banks in the country by this year-end. The segregation of the Islamic and conventional banking operations would be done by strictly adhering to the country’s fiscal and monetary policies, said Qatar Central Bank Governor H E Sheikh Abdullah bin Saud Al Thani.

QCB has recently issued specific directives to each of the conventional banks that have Islamic branches, directing them to stop opening new Islamic branches, accepting Islamic deposits and dispensing new Islamic finance operations.

As for the Islamic branches’ current assets and liabilities including deposits and finance operations the QCB has given a time frame up to December 31, 2011 to manage these by collecting the balances.

Delivering the key note address on the opening day of International Conference on Islamic Economics and Finance yesterday, he said the overlapping nature of non-Islamic activities of conventional banks were making it difficult and complex for the QCB to prepare accurate financial reports.

It is impacting negatively on the proper preparation of the reports at the expected quality standards of Qatar’s financial system. The overlapping of the two banking models could undermine the free and transparent competition between banks, he said.

The local Islamic banks in Qatar is posting sound growth rate that is being reflected on the robust Qatari economy.

He said he was confident that the Islamic banks in Qatar are capable of facing current economic slowdown and any possible impact of the crisis in the developed economy. However, he called on the banks to come out with fresh products that suits the changing demands of the consumers.

The Islamic banking model has been on a growth trajectory over the years. So, they must develop their own mechanisms to tackle the emerging challenges faced by the global economy in these changing times

Islamic banks are mainly facing two challenges. It needs to develop a solid legal infrastructure for their transactions that matches to the global quality standards.

Second, it must come out with less complicated financial products. These two challenges being faced by the local Islamic banks are being studied by international organisations, Sheikh Abdullah said.

He added that Islamic banks grabbed a lot of international attention in the past few years, due to their success in Islamic finance.

Dr Ahmad Mohamed Ali Al Madani, President, Islamic Develoopment Bank; Dr Hatem El-Karanshawy, dean, Faculty of Islamic Studies (QFIS); Qatar Foundation; Dr Mabid Al Jarhi, President, International Association for Islamic Economics (IAIE) and DR Nabil Dabour, Head of Research, OIC Ankara Center (SESRIC) were among other who addressed the opening session.

Islamic finance would have prevented credit crunch

The global financial crisis could have been avoided if banks had abided by Islamic rules that forbid investment in collateralised debt obligations and other toxic assets, UK entrepreneur James Caan said.

“One of the questions we always ask is if the global economy operated under Sharia-compliant finance would we have had a credit crisis,” said Caan, the former star of the BBC series ‘Dragon’s Den, during an interview in Dubai. “I think the answer is no actually.”

Sharia-compliant banks fared better than conventional lenders during the downturn, thanks to rules that forbid speculation and insist loans must be backed by collateral.

Banks are also deterred from repackaging debts, as financial instruments generally have to sold for face value.

Caan, who recently purchased an apartment in Dubai’s Burj Khalifa, is touring the Gulf in a bid to drum up interest in a £45m ($69m) student housing product, offered through the Islamic investment firm 90 North, in which he holds a stake.

“When you think today that half the world’s population today is Muslim, as a businessman I see this as one of the biggest growth market opportunities that is under-exploited,” Caan said.

“Potentially over the next five or ten years I can see this as being a very attractive position. I think there is an incredible increase in demand for Sharia-compliant opportunities and products.”

Independent advisory firm 90 North was co-founded by Philip Churchill, formerly of Kuwait-backed Gatehouse Bank. The company has placed nearly £1.1bn ($1.7bn) on behalf of Gulf investors in Islamic-compliant real estate assets to date.

Sharia law forbids gambling, investments in alcohol and receipt of interest, so fund managers have to select investments deemed halal, or permissible.

“Most of the product that we have sourced is UK-based,” Caan said. “The UK is a natural place that I think Middle East investors find very comfortable, because of the governance, the laws and the transparency.”

Islamic banking assets with commercial lenders will reach $1.1trn in 2012, a jump of 33 percent from their 2010 level of $826bn, Ernst & Young said last week.

Islamic banking assets in the Middle East and North Africa (MENA) region increased to $416bn in 2010, representing a five-year annual growth of 20 percent compared to less than 9 percent for conventional banks, the consultancy said.

90 North hopes to tap into the Gulf’s wealthy residents by offering Islamic-compliant property assets with secure long-term returns, Caan said.

“We have identified an investment opportunity in the student housing market. Well respected universities are still getting more applications than they can cater for so the demand side is very high but most universities are not able to meet the demand in terms of accommodation,” he said. “You have predictability of income.”

In ‘Dragons’ Den’, Caan was one of panel of entrepreneurs courted by start-up firms in a bid to secure their investment in return for an equity share.

Caan, who invested $1.5m in 14 companies while on the show, said Dubai remained the leading destination for investment among the six Gulf states.

“If I was being pitched in Dragon’s Den by Abu Dhabi, by Qatar, by Dubai – which one would I back? [Dubai] has the least and has made the most out of it,” he said.

“Look at the region, Dubai probably has the least natural resources so it doesn’t have an option. Its drive and determination is much greater than somewhere like Qatar.”

Islamic banking grows by 30pc

KARACHI: Islamic banking industry maintained strong growth momentum with over 30 per cent average annual growth during the last six to seven years, said Mohammad Kamran Shezad, Deputy Governor, State Bank.

Speaking at the closing ceremony of a five-day training programme on Islamic banking on Friday, Kamran Shezad said that Islamic banking industry at present constitutes about 7.3 per cent of the overall banking in Pakistan.

He said there are five full-fledged Islamic banks and 12 conventional banks having Islamic banking branches with a network over 840 branches in more than 70 districts across the country.

The resilience of Islamic financial institutions during the recent international financial crisis has testified the ability of Islamic economic and financial system to lend the much needed stability to the financial market, which has been experiencing crisis with increasing frequency, he said.

“Encouragingly, post crisis, there has been a significant increase recognition of Islamic finance as a more prudent, stable and better alternate to the conventional system, which gives us the optimism about growth and development of Islamic finance industry at an even higher pace,” he added.

He said the growth trend in Islamic banking industry is likely to gather further momentum with increasing awareness level and expansion of Islamic banking network in second and third tier cities of the country.

“The State Bank has been at the forefront of almost all the initiatives that have been taken to help develop and promote the industry,” he added.

“To address the awareness and misconception issues, we have launched an awareness campaign whereby targeted seminars and conferences are being organised for the business community, academia, bankers and policy makers throughout the country.

Furthermore, a media campaign is being launched for mass awareness using electronic and print media, he added, according to a statement.

Qatar's QIB may buy Islamic units of conventional banks

Qatar Islamic Bank  (QIB) may snap up the Islamic banking assets of conventional lenders in Qatar, who are facing a central bank order to shut their Islamic operations, a top executive said on Tuesday.

Qatar’s central bank this week told conventional banks to close their Islamic operations by year-end, amid worries of overlap between the two, in a surprise move that lifted shares of Islamic lenders.

The central bank gave no direction on whether banks can apply for separate Islamic banking licenses and analysts have said conventional banks may need to sell their Islamic units.

Ahmed Meshari, QIB’s acting CEO, told reporters the bank is interested in the assets and predicted that some 100,000 customers would migrate to Islamic banks in the Gulf Arab state as a result of the central bank order.

Meshari also said that QIB, the country’s second-largest lender by market value, expects its business to grow 10 percent, buoyed by the new directive.

Analysts project that Qatar National Bank (QNB), with Islamic finance representing 11.6 percent of its total assets, will be the most severely impacted if it is forced to quit Islamic banking.

QIB shares were trading down 1.9 percent on the Doha bourse at 0950 GMT.