Is cross-border activity amongst the world’s Islamic banks sufficient at this time? If not what is required to expedite this? |
My understanding is that, cross border activity of Islamic banks is typically limited to regional activity. Facilitating further activity requires a coherent international payment system, workable cross-border regulation and an internationally recognized standards of Shariah compliance. Don’t hold your breath.
CHRIS COOK
There is relatively little cross border activity by Islamic banks, partly because the industry is fragmented and most of the business is retail. There are notable exceptions, such as KFH and Al Rajhi Bank involvement in Malaysia and Dubai Islamic Bank involvement in Pakistan, but their main activities remain in their countries of origin. It is the international banks offering Shariah compliant products, such as HSBC Amanah, UBS, Standard Chartered and Deutsche Bank that are most involved in cross border business. This reflects their size, global branch networks and strong presence in investment banking. The major factor inhibiting dedicated Islamic banks from following their lead is their limited scale of operations, degree of expertise and country knowledge. Cross border mergers and acquisitions would facilitate more activity, but there is often both political and institutional resistance to this. PROFESSOR RODNEY WILSON Director of Postgraduate Studies, Durham University
Cross border activity amongst Islamic Banks – still relatively low at this time – deserves to be a high ranking priority. The quantity and quality of the financial opportunities themselves as a whole, have to go up first, in order to allow cross-border (reciprocal) to further develop. The market still has to grow more robust and stable. Besides the regular co-operations and business exchanges and the necessary information flows (through information providers like Islamic Finance News), international contacts can be nourished by organizing optimized conferences and “meeting points” (such as cross-border schooling opportunities) for the market players to get acquainted. Besides the financial opportunities, these also favor a common best practices and standards throughout the Islamic finance industry. When you know each other and appreciate each others differences and common grounds, doing business follows almost certainly. PAUL WOUTERS Partner, BENER In my view the cross border activity between Islamic banks is still very limited although it has a lot of potential. There are several reasons for this limited activities including different legal framework, product acceptance and availability, lack of standard documentation and product, market makers and IT. Unless collective efforts are made in resolving the issues pointed out, the cross border activity will not pick-up. IJLAL ALVI Chief Executive Officer, International Islamic Financial Market The recent agreement between securities regulators in Dubai and Malaysia on the cross-listing of mutual funds and the ostensible competition among several Islamic countries to anchor the development of Islamic finance in their home jurisdiction, has added momentum to regulatory consolidation and cross-border harmonization. However, increased cross-border banking activities in a bid to foster greater regional cohesion and more standardization in Islamic finance at large, is a promising but complex area. Many Islamic countries remain divided by currencies and creditworthiness, while normal prudential standards applicable to banks and insurers (and to some extent other institutional investors) – and most of all different interpretations of Shariah law – naturally segment these markets, denying some of the potential gains from diversification. Many Islamic countries (and banks) have much to gain from the harmonization of market practices and regulations. More specific regional initiatives may provide a valuable tool for drawing attention to the emerging asset classes, such as Sukuk, drawing prime mover interest from prime trading hubs in Islamic structured finance and foreign institutional investors, and inclusion of national investment products in regional indices in the effort to improve the visibility and the universality of mutual recognition. Dr ANDREAS JOBST Monetary and Capital Markets Department,International Monetary Fund
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