Abu Dhabi: Don't look now but Islamic banking and finance is becoming big.
How big, you ask? Moody's credit rating agency estimates the global sector is worth around $700 billion (Dh2.57 trillion).
It has been more than a year since the fall of Lehman Brothers and the onset of the global financial crisis, but Islamic banks seem to be doing well.
Analysts have tracked the industry's staggering 15 to 20 per cent growth rate since at least the early part of the decade, a pace that has declined only slightly in the past year.
Mohammad Berro, chief executive officer of Al Hilal Bank, sat down for a brief chat with Gulf News about the state of the sector as well as that of his bank's - as the youngest in the UAE and perhaps the first governmental experiment in introducing a different form of Islamic banking.
Below are excerpts from the interview.
Gulf News: Have you grown more conservative as a bank as a result of the events of the past year?
Berro: As a bank, we have maintained the same levels of conservatism because we were launched after the onset of the crisis.
As a banker, have you grown more conservative then?
Yes. I think the global intertwining of relationships today is so clear and so strong. Before, you were probably analysing things on a smaller scale, in a local or a regional circle. You did not look at the global implications of a certain transaction or a client or a certain investment decision. Now you have to take into consideration the impact of a certain crisis on a certain economy on your local credit or investment decision.
It wasn't as clear that the domino-effect of something happening in another part of the world can affect even a small local investment& that the failure of Lehman Brothers would affect someone in Malaysia. That's something that no one, in my opinion, took into consideration. And that's why you have to remain conservative.
What do you say to critics of Islamic banking, that structurally, many of its products resemble those offered by conventional banks?
I don't think it's a fair comparison. The benchmark is the customer and market needs, not the existing standard of practice.
I would ask the critics of Islamic banking: 'What are the gaps that Islamic banks have vis-á-vis the market requirements, economic growth, or consumer requirements?' I think that even if those gaps have not been closed, they have been shrunk significantly.
Al Hilal bank, for example, is setting a new standard for Islamic banking. It is saying Islamic banking can be modern, it can be creative, it can be competitive and young. There will come a time when we [Islamic banks] will simply become 'the banks.'
Today, they [conventional banks] are called 'the banks' and we are called 'Islamic banks' because they are the norm and we are the exception. I think there will come one day when we will become the norm and they will become the exception.
But many large conventional banks have launched Islamic banking divisions
That proves the strength of Islamic banking, and the need for Islamic banking to the point where those global conventional banks are opening windows for Islamic banking. To the consumer, I say: 'Why do you want to go through a window when you can enter comfortably through the door?'
What about the criticism that the Islamic banking sector lacks central regulation?
I disagree. I think we are as regulated as any other bank. Regulation does not differentiate between Islamic and conventional banks. Any Islamic bank today in any country is part of the system of that country.
But on a Sharia-compliance level?
OK, from a Sharia perspective, I think there is a balance. This is one of the advantages of Islamic banking, which is derived from Islam. There is always room for fatwa, which means there is always room for improvement, adaptability and compliance. It's not rigid, it's not one size fits all. And I think this is a strength.
One of disadvantages is the lack of standardisation. In my opinion, I think we will come to a point where we will find a common standard on the very fundamental basics& We will still differ on some details that will not clash with the core fundamentals but rather accommodate different economies and products.
I think this is the strength of Islam that is brought to the strength of Islamic banking. This is something that we have been leveraging through our Sharia boards to improve and compete locally and globally.
How do you view what some call a conflict of interest in that the Sharia boards of Islamic banks are hired and paid by those banks to determine the compliance of their products?
I do not see [a conflict of interest], in the same way that auditors of banks are paid by the banks to perform audits. You can never find a purely independent auditor. So, from a Sharia perspective I do not see how the Sharia boards are any different.
How much potential in the Arab world do you see for Islamic banking, and more specifically, your bank?
We have a plan of expansion, but it's not very prioritised yet because of the lingering effects of the financial crisis. The Arab world, actually the Islamic world, is a core part of our expansion plans. We were created to be a global player, at least in the Islamic world.
We are still in the process of building our infrastructure and [creating] a very strong operating model from which we can expand and copy the process.
How do you think the failure of regional companies, such as Saudi Arabia's Saad and Algosaibi groups, to pay their debts have affected the sector?
This is a normal problem, in my opinion, that companies go bankrupt. It becomes abnormal, it becomes a lesson to be learnt from when it becomes a trend. I don't think it's a big deal. I think we're over-exaggerating the fact of this issue that is happening today if it's only happening in isolation.
How do you think the West views Islamic banking?
I think our challenge is to change the perception. I think in the West there is a perception about Islam which directly affects Islamic banking. In my opinion Al Hilal is proof of otherwise. I think the way we look, act, talk, bank will have an effect on changing that perception.
But I think the perception in the west is slowly changing. As we've discussed you can see global conventional banks opening Islamic banking arms.