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Islamic funds gain stronger foothold

StanChart CEO talks about potential of Islamic banking in Bangladesh

Suman Saha
Bangladesh can improve its weak infrastructures by utilising Islamic funds available globally, said a senior official of a foreign bank.
The country's stable economy can help attract more Islamic funds from international financiers, said Afaq Khan, chief executive officer (Islamic banking) of Standard Chartered Bank.
Khan was sharing his views on the prospects of Islamic banking in an interview with The Daily Star at Sonargaon Hotel recently.
“The total size of the world's Islamic funds is estimated at SISI.3 trillion, which is growing at 15-20 percent on average annually,” said Khan, who came to Dhaka to launch the bank's Shariah-based product Saadiq for its corporate clients in the country.
Most shariah-based financiers in the world are eager to invest in large infrastructure projects, he said. Bangladesh can attract these investors, thanks to a positive economic outlook of the country.
“All the ingredients are here to attract the Islamic financiers as you have a stable economy, stable regulations and fast economic growth,” said Khan.
The country needs to tell its success stories and future plans to the Islamic investment community globally, he added.
Standard Chartered Saadiq is ready to cooperate with the government in the processes of bringing in the Islamic investors to the country
by utilising its global network, said Khan.
Islamic banking is now an issue of great interest for many, including the western non-Muslims, as the system remained almost unhurt during the global financial crisis, said the official.
Shariah-based banking is growing much faster than conventional banking, he said. Currendy, the banking giant has Islamic banking operation in six countries -- Indonesia, Malaysia, UAE, Bahrain, Pakistan and Bangladesh.
Of the countries, Indonesia has the highest annual growth rate at 45 percent, followed by Bangladesh at 25-30 percent, said the 50-year-old official.
"Conventional banking is riskier than Islamic banking because it deals with debt trading and keeps itself involved in market speculations, which the European and American banks experienced,” he said.
“At present 19 percent of the industry assets and 16 percent of the industry deposits are Islamic. So, there is an accelerated demand for Islamic banking products in the market,” said Khan.
The London-based bank started its Islamic banking operation in Bangladesh in 2004 with consumer banking products under the bank's group branding Saadiq.
“Islamic banking operates in real economy. This banking has no room for gambling, speculation, excess leverage, or the greed for windfall profit,” said Khan.
He joined StanChart in 2003 with a mandate to launch the Islamic
business division for the bank.
Since then, he has been responsible for the strategic build-up of a global Islamic banking business covering retail, corporate and investment banking with a wider product capabilities and award winning solutions.
Khan, who has 22 years of banking experience, believes Bangladesh could be a big market for the Islamic banks. "Around 90 percent people here are Muslims. So, the country has an immense potential
for the growth of Islamic banking.” But he feels the business prospect would depend on diversification of products, services and adequate training of the officials.
"Saadiq” is the brand of this bank's Islamic banking, which has rolled out more than 250 products and solutions relating to consumer and wholesale banking.
An Islamic bank traditionally generates its profits from Sharia-compliant investment activities. This profit is shared back with the
bank's customers at a pre-agreed ratio. An account holder is entided to a share of these profits according to the funds he holds in his account.
Khan said Islamic banking differs from conventional banking, primarily because it does not look to charge or deliver interest.
In Islamic banking, profit is generated through investment and trading, said Khan, who did an MBA from the University of Western Illinois in the US.
The official said this return rate
has to match the level of return provided by interest levels of conventional banking.
Islamic banking in Bangladesh continues to show strong growth since its launch in 1983.
At present, out of 47 banks, seven private commercial banks are operating as full-fledged Islamic banks. Besides, 16 conventional banks are engaged in Islamic banking, according to Bangladesh Bank's annual report for 2010-11.
The total deposits with Islamic banks and Islamic banking branches of the conventional banks stood at Tk 67,580 crore by the end of December 2010. This deposit accounts for 17.5 percent of the deposits with the total banking system, according to BB Data.
Total credit of the Islamic banks and the Islamic banking branches of the conventional banks stood at Tk 62,870 crore by the end of December 2010. This was 19.1 percent of the credit of the total banking system.
The global banking giant targets Bangladesh as one of the potential markets for its Islamic financial products and services.
As part of the move, the bank launched its Shariah-based wholesale banking product Saadiq for its corporate clients on August 2. Earlier the product was for retail customers only.
The Saadiq brand will offer a core comprehensive suite of products related to cash management, trade, term and working capital financing for corporate clients to fulfil their banking requirements in a Shariah compliant way.