MANAMA: Islamic finance can be the bridge to take the massive riches of the Gulf's petrodollar boom to Asia, a Malaysian expert said yesterday.
The head of the Islamic Banking Faculty at the International Centre for Education in Islamic Finance in Malaysia, Professor Saiful Azhar Rosly, was speaking as the member of a panel discussion on the relationship between the Islamic finance industries of the Middle East and South Asia on the closing day of a high-profile conference on development funding.
He told delegates at the Regional Forum on the Role of Islamic Financial Institutions in Financing Development that with Islamic finance the Gulf now had something which can add value to his country's economy in the same way the US and Japan had previously brought it technical know-how.
"Malaysia depends on foreign direct investment from Thailand, Japan, and the US - but as well as money they bring technology. Malaysia has become an economy that basically assembles goods for export.
"As well as an influx of capital there has to be value added skills. So there has to be a marriage of the capital of GCC countries and new skills. Islamic banking can become the bridge to bring that capital into Asia," he said in an address at the event at the Ritz-Carlton Bahrain, Hotel and Spa.
Professor Rosly said the presence of a number of large Gulf-based banks in the Malaysian market was having a positive impact in opening it to other Islamic finance models, and added that Asian Sharia scholars were increasingly knowledgeable on the technical aspects of the industry.
In a slide presentation accompanying his speech, Professor Rosly said "the big bang" of the Islamic finance industry had been a combination of "the September 11 incident and the petrodollar phenomenon".
Now his country was looking at making the most of that phenomenon by inviting Gulf banks to purchase shares in their domestic banks, he added.
"We are looking at the prospects of inviting Arab banks to invest in Malaysian banks," he said.
Also addressing delegates was Saifuddin Noor, a director of the first Islamic bank in Indonesia, Bank Muamalat.
He revealed that the Islamic finance industry in Indonesia had moved rapidly from a stage where banks originally were termed Sharia banks instead of Islamic banks for fear of an Islamophobic backlash, to today's growing industry where Islamic institutions have more than 540 offices nationwide.
The main difficulty Middle Eastern institutions might find in entering the Indonesian market, he admitted, was the logistical challenge of physically covering the country's 17,000 islands.
"The industry is growing but the problem of Islamic banks in Indonesia is networking - the Muslim population is spread out over the islands," he said.
While the Indonesian industry is not at the stage of the Gulf, Mr Noor made a convincing case for its importance to the region's financial institutions.
"In Bahrain and Kuwait more than 15 per cent of assets in banking sector are held by Islamic finance institutions.
"In Indonesia that figure is only 1.2pc, but there are 195 million Muslims in Indonesia and the number of Islamic account holders is more than three times the population of Bahrain.
"We are aiming for a 5pc share of the market by 2008," he explained.
The increasing opportunities of the Asian market were emerging at a timely moment for regional banks Al Amin general manager Mohamed Al Mutaweh told delegates.
"Islamic financial institutions have started to realise the importance of increasing their capital and establishing a shareholder base," he said.
"What we have seen is that Malaysian banks are tapping the resources of this region and you will see some Middle East Sharia scholars on the Sharia boards. This will help shape a common Sharia policy," added Central Bank of Bahrain (CBB) director of banking supervision Khalid Hamad.
Investments of Islamic financial institutions in East Asian Islamic countries have increased by 60pc to over $12billion over the past six years from S5bn