DUBAI, 15 March 2004 — Dr. Mohammed Khalfan ibn Khirbash, the UAE minister of state for finance & industry, is a man much in demand these days notwithstanding his official duties as a federal minister. On Wednesday he gave the keynote speech at the First Islamic Retail Banking Conference (FIRBC) at the Grand Hyatt in Dubai before jetting off immediately to Riyadh for a GCC ministerial meeting. The following Sunday, he was at the opening of the International Islamic Finance Forum (IIFF) at the Crowne Plaza in Dubai. A few days earlier, the Institute of Islamic Banking & Finance of Malaysia had organized with the Jeddah-based Islamic Development Bank (IDB) an Islamic banking conference in Kuala Lumpur, followed by another conference in Muscat. One reason why the articulate Dr. Khirbash is in such demand is that apart from being the minister of state for finance (with responsibility for Islamic banking policy in the federation), he is also chairman of Dubai Islamic Bank which today is one of the largest capitalized and most proactive of Islamic financial institutions (IFIs) in the world.
Another reason is that Dr. Khirbash can also be frank if not outspoken when need be. This in contrast to some of his counterparts who at best are staid and predictable when it comes to Islamic banking policy. At the FIRBC conference, for instance, Dr. Khirbash warned that managing growth in the global Islamic finance sector is one of the crucial challenges that lie ahead. “There are still some clear impediments that prevent us from bridging the gap between the sophistication of our customers and the speed of innovation. We also need to address the structural issue of the liability mismatch (between short-term deposits and longer-term maturities), and the lack of Islamic bankers experienced in product development. Our credit analysis and our risk management techniques too vary widely from bank to bank. There are still difficulties related to cash management due to the lack of Islamic investment opportunities,” he explained.
Anyone doubting the demand for Islamic financial products in the Gulf Cooperation Council (GCC) states should consider the following. Some six financial institutions have or are in the process of converting into IFIs. These include National Bank of Sharjah, which has just completed its first full year of conversion with increased double-digit net profits; and Mashreq Bank, Emlak Finance (the property finance arm of Emaar Properties), and Kuwait Real Estate Bank all of which are currently undergoing conversion into IFIs. There are others in the pipeline, and in the past, there were also unconfirmed reports that the region’s largest bank, The National Commercial Bank (NCB) of Saudi Arabia was also considering converting into a dedicated Islamic bank. NCB’s Al-Ahli range of 22 Shariah-compliant funds is the single largest stable of such funds in the global sector. The Al-Ahli Saudi Riyal Trading Fund is the single largest Islamic fund with over SR11 billion of funds under management. Its Al-Ahli International Trading Equity Fund is similarly the single largest Islamic global equity fund with just under $500 million under management.
The demand and potential for Islamic finance is huge, not only in this region, but elsewhere in Asia, Africa, North America, and Europe,” stressed a senior source at National Bank of Sharjah. However, how to keep the momentum going, and to separate the hype from the shortcomings in the sector — the lack of cooperation between IFIs; the absence of consumer protection in the form of deposit insurance schemes; the lack of consumer awareness of Islamic banking; internal controls and risk management; the demands of new corporate governance and compliance regimes; the development of uniform prudential and supervisory standards for the global Islamic finance sector (a task which has been entrusted to the nascent Islamic Financial Services Board in Kuala Lumpur); uniform minimum Shariah standards; and product innovation and development.
Above all, the Muslim countries, especially the Gulf states, need to develop the appropriate Islamic financial infrastructure, which encompasses regulation, supervision, legal, tax, consumer education and protection, compliance, marketing and product innovation measures and incentives.
