KUALA LUMPUR, 17 November 2005 — The global Islamic banking industry must consolidate to create fewer, bigger, more competitive players that can take on rival Western lenders, a key industry group said yesterday.
There are some 300 Islamic banks and financial institutions worldwide but they account for only 1 percent of global banking assets and many are undercapitalized, said a senior official of the Islamic Financial Services 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 the Associated Press on the sidelines of an international Islamic banking conference here.
The Kuala Lumpur-based IFSB sets self-regulatory standards for Islamic banking based upon Shariah laws, which ban investments that pay interest or that derive profit from alcohol, tobacco, pork, gambling or weapons.
Islamic banking is largely concentrated in the Middle East and Southeast Asia but it is making inroads into Europe and the US, he said.
With Muslims accounting for 1.6 billion, or 25 percent, of world population, demand for Islamic finance is booming, he said. But only one Islamic bank in the world — Al-Rajhi Banking and Investment Corp. in Saudi Arabia — has capital exceeding $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 welcomed a proposal by the General Council for Islamic Banks and Financial Institutions to set up a $1 billion Islamic mega bank, saying it will help boost the industry’s market share in the global financial system.
The council has said it hoped to launch the bank next year and is looking at Bahrain, Qatar, Dubai and Malaysia as possible host country.
The Bahrain-based Albaraka Banking Group, the Islamic Development Bank and Malaysia’s Islamic Bank are among key shareholders.
Abdel Karim said the IFSB hopes to issue a 10-year blueprint to help Islamic countries bolster growth in the Islamic financial sector in the areas of banking and finance, insurance and capital market by May next year.
David Vicary, managing director of Hong Leong Islamic Bank, told the conference that Islamic banking is growing at around 15 percent a year globally with assets estimated at about $500 billion but the sector is still in its infancy.
“The global Islamic banking industry is standing at the periphery of becoming mainstream,” he said. “Size does matter if we want the industry to grow quickly.”