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Islamic Banks see growth in assets

14 June 2010 13:35 (UTC +04:00)

Baku â€“ APA. Islamic finance will likely outpace mainstream banks and top one trillion dollars in total assets this year as demand for ethical investments increase, officials said Monday, Zawya reported.

But Islamic financial institutions must guard against straying from the basic tenets of Sharia law if they are to avoid the excesses that led to the global economic crisis, an industry conference was told.

Experts in the sector called for tighter regulation, more innovative products and development of standard criteria for contracts.

Islamic financial institutions have emerged relatively unscathed from the crisis because their transactions must be backed by real assets -- rather than the sort of derivatives such as subprime mortgages at the root of the turmoil.

Islamic finance also bans interest, which is seen as a form of gambling, and risks are shared between the bank and depositor so there is an incentive for institutions to ensure any deal is sound.

Tan Jeh Wuan, a managing director at the Islamic Bank of Asia, said the assets of the world’s top 500 Islamic banks are expected to top one trillion US dollars this year, up from 822 billion dollars in 2009 and 639 billion dollars in 2008.

Bahrain central bank chief Rasheed M. Al Maraj said that for Islamic finance to continue to avoid the "reputational damage" suffered by conventional banks after the crisis, it "needs to examine its foundations very carefully."

"The foundations must be strong enough to ensure that they can support a much larger industry that now rests upon them," he said at the conference, which is being held in Asia for the first time.

Al Maraj highlighted the need for certainty in Islamic financial contracts by coming up with a standard criteria allowing them to be recognised by the sharia boards of Islamic banks in different countries.

He also urged Islamic financial institutions to improve their risk management, noting that there is a "relatively high concentration of risk in real estate."