The rise in Islamic banking and finance (IBF) continues as officials from the Doha Securities Market announced plans to allow the first Islamic bonds, sukuk, and exchange-traded funds to list on the local bourse with the aim of attracting more foreign investors.
"The potential in Islamic finance is huge," said Syed Mohsin Rizvi, a consultant at the Doha Securities Market. "A number of sukuk issuers will need to raise capital, want to tap local liquidity and have already approached us for their sukuk to be listed," he said. Additionally, exchange-traded funds (ETFs), which track baskets of stocks, would allow more global investors to enter the market more easily through local brokers, Mohsin said.
Qatar's main index rallied more than 34% last year, spurred partly by a rise in foreign interest in Gulf Arab equities. The Qatar Financial Markets Authority is working to establish regulations this year to allow funds, sukuks and ETFs to list on the exchange, Mohsin said.
Though estimates vary, there is little dispute that around the world, annual IBF growth is consistently in the double digits. According to a report by Kuwait-based Global Investment House (GIH), the global industry is made up of some 300 Islamic financial institutions, with another 90-plus takaful, Islamic insurance companies, collectively operating in 75 countries. GIH also reported that overall, the Islamic financial system has over $1trn in assets, with another $300bn in funds under management. Annual global growth rates are expected to reach between 15% and 20% over the next several years. Consequently, more companies are entering the market to get their share of the pie.
The IBF sector has been experiencing strong growth in Qatar, particularly since 2005 when the country's Islamic financial sector was still dominated by two fully Islamic banks, Qatar Islamic Bank and Qatar International Islamic Bank. Since then, as IBF has taken off around the world, conventional banks have begun offering a range of sharia-compliant products through Islamic windows within the local banks.
New players are also coming up with Masraf Al Rayan launching the most successful public offering in Gulf history to date to become the country's only fully Islamic investment and commercial bank. Along with the three domestic Islamic institutions, four of the country's anchor banks, Qatar National Bank, Doha Bank, Ahli Bank and Commercial Bank, have already spun off their Islamic banking operations into full subsidiaries. This combination of structures reflects the sector's development trajectory, according to industry insiders.
According to data released by Qatar Islamic Bank, assets managed by the sector in the country have expanded at an average annual rate of 30%. At the end of 2007, the value of assets held by the Islamic banking system amounted to $11.2bn, growing from just a fraction of that amount in 2000, which shows the tremendous potential in the industry.
The head of a leading Islamic subsidiary bank told OBG, "Islamic banking, though stemming from the past, is still considered new in the market. Therefore, there are many challenges to overcome to ensure continued growth and prosperity [...] the regulatory bodies are still in the process of positioning to best serve the market. Qatar's [...] coming merging of the regulatory authorities should further strengthen the sector in preparation for continued rapid growth."
As IBF matures in Qatar, the industry has begun to see a slight shift from Islamic banking products that imitate conventional ones to completely new, sharia-based products. This is expected to help the Islamic banking sector establish a stronger foothold and identity within the market, which is significantly different from conventional banking and finance.
It is interesting to note that IBF products in general are attracting a large non-Muslim client base. Mohamed Ahmad, general manager of Qatar-based Islamic Financial Securities, told OBG, "The array of products that can now be offered and the different style of banking is attracting increasing numbers of non-Muslims with more than 20% of clients being of other religions and some banks reporting a non-Muslim clientele base of up to 50%."
In order to harness the market's rapid expansion, the continual offering of innovative sharia-compliant products and services is necessary to attract the maximum number of customers and fully compete with the conventional banking system. Continued government regulation should ensure sustainable growth. The introduction of sukuk to the local exchange should offer a new avenue for Qatar to grasp the full advantages of Islamic banking and finance.
