Are bigger banks and more hubs better?
Published on: Monday, May 25, 2015
Kuala Lumpur: Islamic finance has emerged as an attractive alternative operating almost at par with the conventional segment, with more countries jumping on the bandwagon.China, for example, has expressed its interest to become an Islamic finance hub after Hong Kong sold its debut five-year sukuk worth US$1 billion in late 2014.The United Kingdom has also made significant progress in its bid to drive Islamic Finance with volume of Islamic assets of more than US$19 billion.
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The International Monetary Fund also recently endorsed the principles of Islamic finance, saying it could prove safer than conventional finance.But are more hubs and bigger banks any better? Experts beg to differ, saying that bigger and more hubs are not necessarily good for the industry.Chief Economist for Bahrain Economic Development Board Dr Jarmo Kotilaine (pic) said globalisation of Islamic finance is a work in progress."Building a global Islamic finance industry is not a beauty contest. You cannot have too many Islamic finance centres," he said.
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Kotilaine stressed that what the market needs more is a significant number of active jurisdictions to ensure Islamic finance lives up to its principles of risk sharing and asset-based financing.Bahrain remains a world leader in Islamic finance, boasting the highest concentration of Islamic financial institutions globally, with six licensed Islamic retail banks and 18 licensed Islamic wholesale banks.
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Other traditional Islamic finance markets, including Malaysia and Indonesia, are pushing for Islamic mega banks to accelerate industry development.In Malaysia, a proposed merger between CIMB Group Holdings Bhd, RHB Capital Bhd and Malaysia Building Society Bhd fell through due to unfavourable economic conditions.Turkey, Indonesia and the Islamic Development Bank have accelerated their efforts to establish a "megabank" with the aim of creating a platform to serve as a "central bank" for the world's Islamic lenders. Central Bank of Bahrain Executive Director-Banking Supervision Khalid Hamad also echoed Kotilaine, saying that the need of the hour for Islamic finance is to further enhance existing banks in terms of additional qualified resources."(It also needs) a lot of capital to compete in a better way and to be able to take a lot of transactions," he said at the World Islamic Banking Conference in Bahrain late last year. Stay up-to-date by following Daily Express’s Telegram channel.
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