Islamic finance needs to grow

By B.K. SIDHU

SIZE does matter even in Islamic banking and finance, and there is a need for better-capitalised Islamic banking and finance institutions globally, says INCEIF (International Centre for Education in Islamic Finance) president and chief executive officer Agil Natt. 

He said of the US$280mil Islamic banking assets, 75% of the Islamic banking institutions globally were capitalised below US$25mil. They also need to be better capitalised as the global Islamic banking sector is growing rapidly and there is a lot of liquidity chasing Islamic structured instruments. 

He said if any Malaysian bank wanted to play a “meaningful role’’ in the global Islamic banking and finance arena, size was a consideration, so is reach, distribution, and creation of ideas.  

“The way forward is to internationalise the operations, not grow organically, but via mergers and acquisitions and collaborations. Malaysian banks should not be looking at its domestic turf but strengthening and positioning themselves in the global arena. That’s where the real challenge is and that’s where the real money is. 

“Funds, especially those from the Gulf States are looking for new ideas to invest and Malaysia is a good gateway for them not just in the country but for the region,’’ he told StarBiz recently in conjunction with INCEIF turning a year old last Friday. 

He said the pace of development was so robust that even latecomers such as China and Japan were keen to go big in the Islamic banking and finance sector. Other potential markets are India and Central Asia. 

Those in Europe and the US have become more facilitative and even the London financial market is thousands of times bigger than any Muslim financial market. That is why the Western markets such as London and New York continue to attract even the Muslim funds. 

Agil said for now, the bigger players in Islamic banking and finance were still the conventional banks that had Islamic banking operations such as Citibank, HSBC and even Standard Chartered Bank. He added that the West had embraced Islamic finance and banking and that had helped them make more money. 

“We have seen so much growth in Islamic banking and perhaps Malaysian banks should be more aggressive in product creation and tap funds that are looking for innovative products. 

Agil Natt: For now, the bigger players in Islamic banking and finance are still the conventional banks that have Islamic banking operations

“Bigger entities that are well capitalised are needed for creation of newer ideas to structure more issues in the market place. If you look at the interest Islamic banking is generating globally, we should have the ideas, products and value propositions for investors, be it the Gulf States investors or even from Asia,’’ he added. 

Saudi Arabia’s Al Rajhi Bank is the world’s biggest Islamic bank in terms of assets followed by Kuwait-based Kuwait Finance House, but none of the other banks in Malaysia and elsewhere is anywhere close to Al Rajhi Bank, which is predominantly a retail-based bank. 

“The gap is too wide between conventional and Islamic, more so the number of smaller sized Islamic banking and finance institutions is so high that it would take a lot to grow anywhere near what the commercial banks are,’’ Agil said. 

On harmonisation of the Syariah principles globally, Agil said: “There is a 70%-80% convergence in interpretation and banks should capitalise on products that are harmonised for the global market.’’