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      Islamic banking: not a binary sum

      Islamic banking: not a binary sum

      Luxembourg for Finance joined 1200 delegates at the 2012 World Islamic Banking Conference (WIBC) in Bahrain. The event was notable for the wide range of countries represented and for the image that emerged of a sector that is adapting to different cultures. Shariah compliance need not be a “binary sum”, as one delegate described it: in practice the industry has evolved to meet the needs of Islamic communities in multi-racial societies.

      Luxembourg for Finance joined 1200 delegates at the 2012 World Islamic Banking Conference (WIBC) in Bahrain. The event was notable for the wide range of countries represented and for the image that emerged of a sector that is adapting to different cultures. Shariah compliance need not be a “binary sum”, as one delegate described it: in practice the industry has evolved to meet the needs of Islamic communities in multi-racial societies.

      Countries have approached the sector from different angles, with varying levels of visibility; we hear (i.a.) of corporate sukuk in Australia and Germany, retail banking in the UK and France, venture capital in the USA, investment funds in Luxembourg and Mauritius and takaful insurance products in Asia, to cite a few examples.

      Cultural adaptation can be seen in Malaysia. In a multicultural environment, the existing tenants of a real estate investment target may be active in non-permissible sectors. The Malaysian shariah authority has approved a 20% non-compliance ratio at the time of purchase, providing tenancies are brought into line at the time of renegotiation. But even here, there is nuance.

      Another example is the USA, where 2% of the population (6m) is Muslim. Retail Islamic banking goes back to the 1980s (in Pennsylvania) and there is an active – but discreet - venture capital community. David Chavern, EVP of the American Chamber of Commerce in Bahrain, explained that a “Dow Jones Fatwa” laid the foundations of the industry by setting down permissible variance from shariah, best practice standards for purification and a list of eligible activities. “An important principle established was to look at the core business,” he explained.

      Speaking on a panel of non-MENA countries, Cheryl Packwood, CEO of Business Bermuda stressed that countries like Bermuda and Luxembourg “have had a role to play in the development of the industry so far and we can do more to contribute to this natural expansion.” The panel discussion, she added, was about “what we can do together with the international Islamic finance community to expand the industry, grow capital and benefit from its growth.”

      The question of cultural or institutional resistance was posed to the panel. Speaking for Luxembourg, Eleanor de Rosmorduc (LFF) pointed out that the Luxembourg Central Bank had joined the IFSB (Islamic Financial Services Board) for the specific purpose of gaining experience in liquidity management and supervision in anticipation of an eventual Islamic banking outlet.

      This echoed an earlier exchange. Asked whether it would be easy to open an Islamic bank in the USA, Samad Sirohey, CEO of Citi Islamic in Bahrain, replied that there was “no regulatory hostility”, but that at the present time it was “hard to open a bank at all in the United States. Better buy one and convert,” he advised. ER