Need to shift focus from real estate to secondary markets
Published: 10 December 2007
MANAMA: Many Islamic investment banks are project-driven and do not have a steady source of bread and butter revenue to tide them over any slumps in economic activity, the Central Bank of Bahrain (CBB) Governor warned yesterday.

In a keynote speech on the opening day at the World Islamic Banking Conference, Rasheed Al Maraj said that Islamic banks seem to be increasingly focused on real estate and asset finance but not moving into other financial or liquid instruments with active secondary markets.

“The sensational growth that has brought Islamic banks such high profits over the past five years, coupled with high levels of liquidity, have meant that Islamic banks have not had to fight for funding or ideas, he told the more than 1,000 delegates at the conference. “The result is that we are seeing too many Islamic banks with the same business models and structures.

“The availability of plentiful liquidity coupled with the explosion of real estate projects in the region have conspired to breed a level of, dare I say it, complacency in some Islamic banks,” he said.

“Many Islamic investment banks are project-driven and do not have a steady source of bread and butter revenue to tide them over any slumps in economic activity.

“This is in contrast to many of the major conventional banks with loan books, overdraft and credit card facilities to provide steady revenue to cover overheads and make profits.”

He said another challenge facing Islamic banks was the multiplicity of Sharia boards and judgements.

“This leads to a lack of homogeneity for some products on the one hand, and a lack of uncertainty by clients as to whether a product developed in one jurisdiction is Sharia-compliant in a neighbouring jurisdiction.

“Islamic financial products need some level of harmonisation in terms of product features to gain mass acceptance,” he said.

“Islamic banking has been growing so fast that it has been difficult for banks to find enough skilled or qualified staff, he added.

“This is why the CBB has participated with Islamic institutions in Bahrain in setting up the Waqf fund to provide financial and technical support in upgrading current training programmes and introduce new ones,” Mr Al Maraj said.


© Gulf Daily News 
 

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