The emerging Islamic finance industry needs to improve its transparency to overcome the financial crisis faster, the chief executive of Islamic bank Capinnova has said.
The nascent Islamic finance industry, which controls assets of about $1 trillion, has boomed in recent years on the back of high oil prices, but at the end of last year got caught up in the global liquidity freeze alongside its conventional peers.
"The key word to restore confidence in the market and to recover from such a crisis is transparency," said Jamal Hijres, chief executive of Capinnova, which is owned by Bahraini lender BBK.
"Transparency through audited financial statements, transparency in terms of dealing and sharing information with each other," he said.
Islamic banks cater to investors who want to avoid paying or earning interest, viewed as usury under Islamic law.
Many products and accounting standards are still under development in the industry, which complies with Islamic law that is open to interpretation by Islamic scholars.
"When you have high growth, to some extent that will be at the expense of maintaining proper control because you have to act very fast," Hijres said.
"Most financial institutions, also in conventional (banking), want to wait for Q1 and Q2 financial statements to see the actual performance of their counterparties before they enter bank lending," he said.
Hijres said that AAOIFI - the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions - is moving at a fast pace to provide standards for different types of assets and financial transparency.
Capinnova, fully owned by BBK and focused on private equity, asset management and corporate finance, started its operations in January with a paid-up capital of $125 million and authorized capital of $500 million.
Hijres said the bank hopes to close its first deals in private equity and corporate finance during the first six months of the year, without giving details.
He said the bank will focus on small and medium-sized companies in private equity and will seek large-ticket corporate financing only after a few years.
"We don't want to tie up our capital in big projects," he said.
Hijres said the bank is still in the process of setting up investment funds of between $50 million to $100 million targeting high-net worth individuals for investments in equities, fixed-income, infrastructure and real estate. (Reuters)