Gulf governments eye bigger Islamic stake

ISLAMIC MOVE: Governments in the Gulf are eyeing bigger stakes in Islamic financial organisations, according to Moody's. (Getty Images)

Gulf Arab governments may take bigger stakes in Islamic financial companies to gain more control over the industry as demand soars for investments and financial services complying with Islamic law during an oil boom, according to Moody’s Investors Service.

Governments in the UAE, Qatar and Saudi Arabia have set up new Islamic banks to company with Islamic law, or sharia, to ensure they retain an ethical image.

The $700bn Islamic finance industry has the potential to surge to as big as $4 trillion, the credit rating agency said.

“It is as if governments do not want to see the Islamic banking industry over-dominated by the private sector, in order to keep the whole thing under control,” said a research report published on Tuesday.

“If governments have an increasing share of ownership in IFIs, the risk of consumers perceiving an IFI as insufficiently compliant with sharia is somewhat mitigated,” it said.

Growth of Islamic financial institutions (IFIs) has been supported as a more than five-fold rise in oil prices since 2002 drives demand for products, including Islamic bonds and loans to finance major infrastructure projects, Moody’s said.

Last year, Dubai opened Noor Islamic Bank, in which the Dubai government and the emirate’s ruler equally own 50 percent -- with the aim of creating the world’s largest Islamic bank within five years.

UAE capital Abu Dhabi this year started Al Hilal bank with $272.3m of capital, while Ajman set up Ajman Bank to tap growing demand for Islamic retail products.

Saudi Arabia’s Alinma Bank and Qatar’s Masraf Al Rayan also include the government as major shareholders, a strategy that would help the lenders expand into new markets, Moody’s said.

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