CAIRO: Crisis brings opportunity, the old saying goes. But it is hard to find many who share that sentiment nowadays, as fallout from the financial crisis pierces the global economy, gutting auto-making jobs in Detroit, prodding real estate bubbles in Dubai, halting construction in Kiev and hindering even China’s economic behemoth.
And so, amid all the gloom and dolor, Islamic bankers’ recent cheer has struck a particularly bold contrast.
So far, it appears there is good cause for Islamic bankers to smile. Albaraka Banking Group (ABG), a Bahrain-based firm comprising banks compliant with Islamic law, or Sharia, reported a big earnings boost on Monday. Their net operating income jumped 68 percent to $262.81 million for the third quarter of 2008, while profits rose by 50 percent to $160.15 million over the same period.
ABG, which is listed on the Bahrain and Dubai stock exchanges, offers retail, commercial, investment banking and treasury services
“Although the crisis impacted certain financial institutions in the region, the Group, thanks to Allah and its Islamic banking approach, was not affected by the adverse consequences of the crisis and it continues to achieve strong growth, said Shaikh Saleh Abdulla Kamel, ABG’s chairman, in a company statement.
Last month the Birmingham Post, a British newspaper, reported that non-Muslims began moving their cash into the Islamic Bank of Britain because of it appeared safer than conventional banks, which might be exposed to bad derivatives-based investments. Swati Taneja, head of the biannual International Islamic Finance Forum, went so far as to call the crisis a “golden opportunity for Islamic lenders.
Though interpretations of Sharia rules for lending vary, most Islamic banks ban speculation (gharar), interest (riba) and investment in “immoral assets such as pornography, pork, guns and alcohol. To turn a profit, they employ a variety of Sharia-friendly tools, such as murabaha, a type of financing that avoids interest through a system of markups and installment payments.
Because Islamic banks ban derivatives and subprime-trading as speculative, their assets have been largely shielded from the fallout of Lehman Brothers’ collapse and the slew of bank buyouts and bailouts that followed. Their reliance on religious doctrine has even led some to suggest that they could provide a model for the more “rigorous standards modern finance needs.
Overall, the field is gaining ground quickly. Islamic finance has expanded by about 15 percent a year recently. According to the Islamic Financial Services Board, the industry now controls about $700 billion in assets, and could hold $1 trillion by 2010.
Malaysia, Kuwait, the United Arab Emirates, Pakistan and Turkey have all emerged as hubs for Islamic finance. Nations with minority Muslim populations are expanding into the field as well, notably the United Kingdom and, more recently, France.
Egypt, where Islamic banking is also growing, has a long history with the field. According to a study published by the University of Malaya, the first “modern experiments with Sharia-based lending began in 1963 as profit-sharing savings banks based in Mit Ghamr, an Egyptian town.
The six-year-old Albaraka Group has been among the larger beneficiaries of the field’s recent boom. They have ballooned to over 267 branches across a dozen countries and plan to reach 350 within the next three years.
In Egypt, Albaraka is represented by the Egyptian Saudi Finance Bank, which has 20 branches.
“Insha’allah, we will reach 25 branches [in Egypt], said Adnan Yousif, Albaraka’s president at a conference here last Monday.
Because most Arab banks were shielded from broader financial woes and local economies are still expanding, regional groups like Albaraka are poised to expand quickly, Yousif said.
“People now, they think Islamic banking has something to be considered for the future, he said.
Still, the Islamic financial industry is relatively tiny. While Albaraka can point to growth as many contemporaries shrink, its total assets stood at just $11.13 billion at the end of the third quarter of this year.
Citigroup, one of the biggest conventional financial service firms, held roughly 185 times that amount, or nearly $2.05 trillion, in the same period.
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