Islamic finance sees global growth
Posted by meb at January 20th, 2007
Islamic-compliant financial institutions operate by investing in goods and services have shown promising growth. Modern practices of this are based on 35 years of experience in Egypt and Malaysia. But Islamic finance has lately captured the attention of global financial groups with its huge volume.
In the Islamic world, Iran and Sudan are on one side with financial markets operating only with Islam-compliant institutions; Bahrain, Indonesia, Malaysia, Pakistan and the UAE are on the other side with mixed markets. In recent years this type of financing has gone beyond these countries and began to operate in British, US and Swiss markets. Islam prohibits interest, usury and speculation. The Koran also forbids investing in tobacco, alcohol, gambling, and weapons.
In Turkey, Islamic finance debuted in 1985. The names of special financial institutions — banks operating with Islam compliant products — changed as new banking laws put different regulations on participation banks last year. Kuveyt Türk and Albaraka Türk, founded by Gulf capital, and locally-owned Bank Asya and Türkiye Finans are participation banks running in Turkey. These banks have assets totaling $12 billion, thanks in part to economic and political stability. The share of interest free banking is now 3.5 percent of all banking and expected to increase to 5 percent. Participation banks’ share is 4.6 percent in credit and 3.5 percent in total funds. Participation banks grew 23.5 percent in the first half of 2006 as opposed to 14.7 percent for conventional banks.
The volume of global Islam-compliant assets was $300 billion according to September 2006 data. Islamic countries made up one-tenth of the market. Citigroup, Deutsche Bank, HSBC, and Lloyds TSB increased their shares in this market, signaling wild competition. The recent hike in oil prices caused a major surplus in oil-producing countries. But because of the reactions against Gulf capital after Sept. 11 in developed markets, petrodollars searched for new markets and Turkey was one of them. These events also have positive effects on the increase in interest-free banks.
Ünal Kabaca, general manager of Bank Asya and the president of Participation Banks Union, said their biggest strength was closeness with the real sector. “We will continue our growth by increasing the number of branches and service quality,” said Kabaca. “Product diversity will rise if legal arrangements about annuity bonds and interest free bonds are made,” he said. Kuveyt Türk General Manager Ufuk Uyan said that participation banks had not reach the expected level but they were strong enough to cope with crisis. Türkiye Finans General Manager Yunus Nacar underlined the importance of Savings Deposits Insurance Funds (TMSF) because they guaranteed deposits in participation banks. “There were many individuals keeping their savings out of the banking system to keep away from interest; now they are joining it,” said Nacar. Albaraka Turk General Manager Adnan Büyükdeniz pointed out the success of participation banks in economic crisis of Turkey because their capital structure faced less risk.
Enterprises such as Citicorp, Goldman Sachs, HSBC, Morgan Stanley, Standard Chartered, Banque National de Paris, ABN Ambro, Bank of America, Key Global, Sociate Generale, BNP Paribas and Commerzbank have widened their scope through interest-free financial instruments.
Source: www.todayszaman.com by Yahya Çark
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