Islamic banking increases 30% -- Hope for financial sector

June 19, 2008

Islamic banking has grown 30% in the last year, to more than $500 billion world-wide. This type of financing must conform to Shariah law, which means Islamic banks avoid alcohol, tobacco and gambling businesses. It also means no interest can be charged. Instead, lenders profit-share with the borrower. This has helped Islamic banks avoid the risky asset classes responsible for the sub-prime meltdown. (Source: Global Finance, "Sharing in Risk and Reward", June 2008; IHT, Islamic finance is seeing spectacular growth, November 5, 2007)

Islamic banking is just part of the overall Islamic finance sector, which includes asset management and increasingly more sophisticated investment products. Total Islamic assets under management will be $1 trillion by 2010, growing 20% annually. Growth is being driven by record-high oil profits, which in turn is driving Middle Eastern countries to create world-class financial centers such as Dubai. According to a McKinsey estimate, Middle Eastern countries will have a total of $9 trillion to invest by 2020. Further demand for Islamic banking will come from the growth in population and wealth of the world's 1.6 million Muslims. (Source: Global Finance, "Corporate Financing News", October 2007)

What Islamic banking means:
The ongoing global credit contraction brought on by the provides an opportunity for Islamic financing to blossom. This week, the Dubai Multi Commodities Centre Authority and Barclays Capital launched the first shariah-compliant hedge fund, with $250 million to invest in commodities. Even the U.S. based Citigroup is profiting -- it was ranked first in underwriting Islamic bonds and loans with $4.5 billion of deals. (Source: Islamic Finance News, Dubai commits $250 million to shariah-compliant fund, June 19, 2008)

Action steps:
Talk to your financial planner about making sure your finance sector mutual funds include global banks such as Barclays and Citigroup. If you are risk tolerant, look into funds that focus on Middle Eastern finance companies.

For more related articles, see the Top Ten World Economic Trend, Peak Oil Myth

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