By Asma Al-Sharif
Jeddah conference debates the future of a sector now valued at $1 trillion.
The global financial crisis is an opportunity for sharia-compliant Islamic banking to further its position internationally, bankers said at a forum in Saudi Arabia on Saturday.
Islamic banks have been barely bruised by the global credit crisis so far, although falling property and commodity prices and slowing economies are starting to affect the sector.
But bankers at the forum, on how the world finance crisis could affect Islamic banking, saw the sector strengthening.
"It is a must for Islamic finance to seize the opportunity that came with this global financial crisis," Ahmad Ali, president of the Jeddah-based Islamic Development Bank (IDB) said at the discussion organised by IDB.
"Global investment banks should be set up that realise the Islamic economy and offer the world a new vision and different way to manage assets, invest wealth and create products."
Sharia-compliant finance bans the receipt of interest and investments in companies dealing in alcohol, gambling and pornography.
Islamic financing deals are backed by assets, commonly real estate and commodities, due to the sharia requirement that transactions must involve real economic activity.
There are more than 300 Islamic financial institutions worldwide and the sector is valued at about $1 trillion, just a fraction of the conventional global banking industry.
The growth of sharia banking has been fuelled by an increasing focus on Islamic values and cash from Middle East oil exporters hungry for assets that comply with Islamic principles.
The falling oil price could affect that.
But with Muslims making up almost a fifth of the world's population, the Islamic industry was seen as offering plenty of room for longer-term growth.
"Regulation by itself is not the answer," a Saudi Islamic banking consultant said.
"Regulation is necessary but it has to be complemented by a structural change in the financial system and this is the structural change that Islam has suggested."
Saleh Kamel, a Saudi entrepreneur who heads the General Council of Islamic Banks, said the global crisis suggested Islam was the "third way" after the failure of great ideologies.
"Perhaps through this crisis, that is a great evil for the world, God will lead us to the school of moderation," he said.
"Communism has failed and capitalism failed, and only now are they starting to admit this failure," he said. (Reuters)