x Abu Dhabi, UAEWednesday 26 July 2017

Call for unity in Islamic finance

Saudi Arabia sets out its stall as a centre for Islamic banking, with bank executives saying that the birthplace of Islam has unique advantages in developing standards acceptable across the entire Muslim world.

Saudi Arabia should stake its place as a hub for Islamic banking and finance, banking executives at the Jeddah Economic Forum said yesterday.

Sheikh Saleh Kamel, the chairman of the Jeddah Chamber of Commerce and the Federation of the GCC Chambers, said the kingdom should move to foster unity in the US$1 trillion (Dh3.67tn) Islamic finance industry, in which regulation has become fractured along national lines.

"The fatwa should be unified," he said. The current system of competition among jurisdictions had carried on "to such an extent that we make halal haram, and vice versa".

The industry and the public would benefit from bodies overseeing Islamic finance across borders, Sheikh Kamel said.

"We should have a Sharia rating commission to rate all tools and instruments existing in the market," he said.

The optimism about Saudi Arabia's place in the Islamic finance industry comes as unrest in Bahrain calls that country's business-friendly reputation into question, causing some companies to withdraw to other locations in the Gulf.

Saudi Arabia has traditionally been a more conservative player in the Islamic finance industry than Malaysia, Bahrain and the UAE. However, the kingdom's position as the largest Muslim market and the birthplace of Islam would give it a competitive edge over many of its rivals, according to Abdullah al Rajhi, the chief executive of Al Rajhi Bank, the largest provider of Islamic retail products in the kingdom.

"The future role in the kingdom of Saudi Arabia in developing the Islamic finance industry is very important," he said. "Any insight that comes from Saudi Arabia is considered to be the most acceptable by Muslims around the world."

However, providing clarity of regulations in the local market was proving difficult, Mr al Rajhi said.

"There are some shortcomings in application of regulations because there's no institution or unified standards, but each institution has its own Islamic authority."

Many institutions seeking to develop clearer oversight for Islamic finance, including the Accounting and Auditing Organisation for Islamic Financial Institutions and the International Islamic Financial Market), are based in Bahrain.

However, international investors fled Bahrain as the crisis there deepened and now perceive it as riskier.

Bahrain's five-year credit default swaps, considered by investors as a reflection of a country's riskiness, have risen 112 basis points to 354 basis points since unrest broke out in the country on February 14, according to data from Bloomberg News.

Abdulkareem Abu al Nasr, the chief executive of National Commercial Bank, the kingdom's biggest bank by assets, said Bahrain's upheaval was not an opportunity for Saudi Arabia.

"The prevalence of the Islamic finance industry in Saudi Arabia is not a matter of the challenges in other regions and neighbouring countries," he said. "It's the principle of the market here in the largest economy in the Middle East."

He warned, however, that the industry would face difficulty in continuing its strong growth without addressing the issue of cross-border regulation.

"This difference leads to greatly contradictory views and applications, and I believe this is an issue which limits the growth of this industry," Mr al Nasr said.