Islamic banks have come long way in the GCC, from being relatively unknown in the region about a decade ago to offering Shariah-compliant investments and credit products.
Abdulla Hasan Saif, Chairman of The Islamic Bank of Asia (IBA), a major Islamic bank based in Singapore, said the bank registered year-on-year growth of 20 per cent.
In an interview with Emirates Business at the opening of IBA's regional office in Bahrain, Saif said Singapore's market was an attractive place for the bank and there were proposals to expand its activities in the GCC and East Asia.
IBA's activities now include the issuance of Islamic sukuks and real estate, commercial and even agricultural finance, he said.
How do you evaluate the performance of Islamic banks in GCC countries?
Though Islamic banks are still new in this part of the world, they have come a long way with regard to Shariah-compliant activities. They have started providing investors with investments and credit tools that are all based on Shariah. There are legislative bodies in different banking establishments with awareness of the region and Islamic laws. This encourages investors who prefer to make all transactions according to the Shariah. In the case of IBA, our credit and investment operations grew 20 per cent as the total Islamic transactions worldwide touched $450 billion (Dh1,652.8bn).
When we talk about the market for Islamic finance, it means all countries, not just Islamic ones. A lot of investors prefer Islamic banks, whether they are Muslims or not.
What about IBA's capital and activity?
IBA was started eight months ago with a paid capital of $500million. Our activities include the issuance of Islamic sukuks, real estate and commercial finance, etc. As can be seen, Islamic banking also extends to the fields of industry, transport and agriculture.
What challenges do Islamic banks face?
I don't see any challenges for Islamic banks. They operate on an administrative and legal framework built on Shariah, while traditional banks are based on traditional laws. The investor now has the option to chose between traditional banks or banks that provide Shariah-compliant products. We cannot consider this a challenge. The only challenge is to increase awareness. IB Asia was not established just to meet Muslims' needs. There are non-Muslim investors who need Islamic finance, because it is characterised by efficiency and diversification.
Has IBA entered into Islamic real estate finance?
We have not entered this field, but as part of our plan, we could set up a portfolio including real estate finance or securities of establishments approved by legislative bodies.
Do you plan on expansions soon and what are the markets that you will consider entering into?
As you know, IBA is set up in Singapore, which has an active market. The legal and monitoring systems in Singapore enjoy much respect. Our first office outside Singapore is in Bahrain. It is a regional office – not only for Bahrain but also for the rest of the GCC and the Middle East.
It aims to market the bank's operations in all the GCC countries and the wider Middle East. We are also looking at entering other countries in South East Asia, such as Indonesia.
Do you plan to open a branch in the UAE?
The office in Bahrain is a regional office for all GCC countries. But in future, if the management see a need for that, we would do it. It strictly depends on the requirements of the market.
How do you see inflation in the GCC countries?
The increase in prices does not reflect only oil derivatives but also other materials. All imports into GCC countries have seen an increase in prices, such as rice and building materials. This rise in prices has contributed to inflation. The GCC governments have tried to minimise the effect of inflation by revising employees' salaries and subsidising some food items, housing and electricity, etc.
Does IBA intend to issue sukuks?
We are studying the issue of Islamic sukuks in Singapore. We are now trying to create a mechanism with the bodies concerned to issue these sukuks at a reasonable cost. The issue might ready by the year-end.
Do you have any other plans for the booming real estate field in the GCC or elsewhere?
Our plan in the current year includes entering real estate shares and securities. regional office The inauguration of IB Asia's regional office was synchronised with the first anniversary celebrations of the bank. IB Asia was set up in 2007 as a joint venture between Singapore's DBS, one of the biggest financial groups in Asia, and 34 investors from the GCC countries. The bank held the first meeting of its board of directors in Bahrain. During the meeting, the signing of 20 deals, worth more than $500 million, were announced. The bank's transactions in the first quarter of 2008 have touched $200 million.
Abdulla Hasan Saif
Economic Affairs Advisor to the Prime Minister of the Kingdom of Bahrain and Chairman of IBA
Prior to his current appointment, Saif served as the minister of finance and national economy in Bahrain. From 1981 to 2005, he held positions in the Bahrain Monetary Agency, International Monetary Fund, World Bank, Arab Monetary Fund, Islamic Development Bank and the Arab Fund for Economic and Social Development.
He was also the acting executive director for the Bahrain Economic Development Board. He is a fellow of the Chartered Institute of Management Accountants, UK. In 2002, he received an Honorary Doctorate in Humane Letters from the University of DePaul, Chicago.