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gateway to islamic finance interview - Institute of Islamic Banking ...

COUNTRY FOCUS

NEWHORIZON July–September 2008

Imran Iqbal,

Saudi Hollandi Bank

Islamic Banks was created under the

auspices of the OIC, to promote and

facilitate cooperation between Shari’ahcompliant

financial institutions, as well

contribute to harmonisation of the industry

on an international level. The Association

operates from Jeddah.

Since its inception, the OIC has accumulated

a host of subsidiaries and affiliates across the

globe. For example, Islamic Fiqh Academy is

based in Jeddah, the Research Centre for

Islamic History, Art and Culture is in Turkey,

the General Council for Islamic Banks and

Financial Institutions is located in Bahrain

and the Islamic Chamber of Commerce and

Industry (ICCI) is headquartered in Pakistan.

Last year, the ICCI and the OIC announced

a ten-year development plan, according to

which up to 200 Islamic companies are to be

established in the OIC’s member countries

with the aid of the ICCI’s subsidiary, Foras

Investment Company (NewHorizon,

January–March 2007 issue). Foras’ chief

executive, Hatim Jamil Mukhtar, stated at

the time that the purpose of the project was

to accelerate the process of economic

development across the international

Muslim community.

Saudi Arabia, of course, is also to benefit

from this initiative. The state is committed

to further strengthening its economy, which

at the moment is heavily dependent on oil

(around 75 per cent of budget revenues,

nearly half of the GDP, and over 90 per cent

of the country’s export), making it the

world’s largest petroleum exporter.

The banking sector has not been prominent

until five or so years ago, partially due to the

stringent laws prohibiting the international

banks setting up independent operations in

the country. The regulations were introduced

in the 1970s, when the banking sector was

nationalised, and the rules were relaxed only

three decades later, with Saudi Arabia’s

efforts to join the World Trade Organsiation

(WTO). The first foreign bank to be granted

a license from the Saudi Arabian Monetary

Agency (SAMA, regulator) to open a branch

in the country was Deutsche Bank – this was

in 2003. Since then, a number of

international players dipped their toes in

Saudi waters (although licensing of foreign

banks was temporarily suspended by SAMA

in 2006), including HSBC, BNP Paribas,

Kuwait National Bank, State Bank of India,

National Bank of Pakistan and JP Morgan.

Today, the Saudi banking market holds

assets totalling $290 billion, and analysts

name it as one of the most profitable and

efficient in the region.

The Islamic banking sector has been

developing in parallel to the conventional

sector, albeit until recently at a somewhat

slower pace. The domestic banks felt the

sting of international competition, with

foreign banks offering better service

standards and more extensive product

range. Whilst originally local financial

institutions offering Islamic products and

services were perceived to be more tuned to

the local customers’ needs, foreign banks

moved in on the Shari’ah-compliant finance

territory by opening dedicated Islamic

windows. However, the majority of

domestic financial institutions successfully

stood their ground, Al Jazira Bank being

one of the most eminent examples. The

bank went from strength to strength,

expanding its services to Islamic insurance

(Takaful Ta’awuni programme) and

scooping the Islamic Finance Weekly award

for the Best Takaful Operator in 2004,

Euromoney Islamic Finance Award for Best

Life Takaful Provider worldwide in 2006,

and Middle East Insurance Award for Life

Insurer of the Year in 2007 (NewHorizon,

January–March 2007 issue).

Saudi Hollandi Bank (SHB) is also among

the flourishing domestic financial

institutions. With a history dating back to

the 1920s, the bank has a wealth of

experience, including in serving as Saudi’s

central bank (for some time, SHB was the

only operating bank in the country and

acted as a central bank, maintaining Saudi’s

gold stock and processing the first oilrelated

transactions). Today, SHB is the

eighth largest bank in the country, with a

network of 42 branches offering corporate,

consumer and treasury banking products

and services. The bank launched Islamic

operations in 1995, recalls Iqbal, senior

24 IIBI www.newhorizon-islamicbanking.com

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