Mosque in Ningxia Hui Autonomous Region in China

Ningxia to Spearhead Islamic Finance in China. With encouragement from the China Banking Regulatory Commission (CBRC), Ningxia Hui Autonomous Region is set to take the lead in trialling Islamic financial services in China. If the pilot project is successful, policy makers hope that Islamic financial services will gradually become available throughout North West China. Lu Suping, Chairman of the Bank of Ningxia’s board of directors, confirmed that the regulatory bodies had given the bank preliminary approval to go ahead with an Islamic Finance trial.

History of the Islamic Finance Initative

The idea of offering Islamic financial services was first raised at the end of last year by the Ningxia Hui Autonomous Region’s Peoples’ Government, but according to a source from Ningxia Branch of China Banking Regulatory Commission (CBRC), “it was only after many rounds of consultation that the trial finally gained support from the relevant departments.”

At the start of this year a special office was set up to undertake a feasibility study into the proposed trial. Lessons were drawn from the experience of both other countries and also Hong Kong in regard to the establishment of Islamic financial services. The results of the feasibility study have been presented to the CBRC and Ningxia Hui Autonomous Region’s party committee.

A source familiar with the matter revealed that, regulatory bodies had suggested that either a special department be established within the Bank of Ningxia or that special service windows capable of providing Islamic financial services be introduced at various branched of the bank. “In fact, due to disagreements about the scale of the pilot project, the CBRC finally decided to select Ningxia as a trial area. However, they plan to gradually enlarge the scale of the project,” the above source added.

The Islamic Finance Pilot Project

Details of how the project will proceed remain scant. According to Lu Suping, “we still haven’t formulated a detailed plan; the bank’s first priority is to establish a special branch, designed in an Islamic style, and capable of providing Islamic financial services to local Muslims.”

She also revealed that they planned to recruit a Muslim manager to run the branch. When questioned about the bank’s ability to support the pilot project in these uncertain economic times, Chairwoman Lu noted that the Bank of Ningxia currently had 34 branches, was well-governed and has an exemplary risk control system.

“Moreover, the bank already employs 200 Hui nationality workers, 13% of the total number. Hui employees also make up 12% of the bank’s management level staff,” said Mrs Lu.

“These Muslim employees provide the human resources required for the pilot project,” she added. Chairwoman Lu said preparations for the pilot project would be completed before the end of this year.

However, local banking watchdog remains cautious about the pilot project and has drawn attention to some of the difficulties that lay ahead for the bank. For instance, the scope of Islamic financial services goes beyond those laid out in the country’s commercial banking law and therefore the introduction of Islamic financial services will require special permission from various departments.

Furthermore, according to Islamic financial practice, financial transactions are calculated on the basis of the transfer of real assets, which will often meet problems to do with the duplication of tax and therefore will need to apply for some kind of preferential tax policy. Moreover, commercial banks lack experienced employees who are also familiar with Islamic doctrine. In order to study the operation of Islamic banks, the local government, the CBRC and Bank of Ningxia have organized an inspection tour of Malaysia and the United Arab Emirates in July.

Global Vision

The EO learned that local government has dreams of turning Yinchuan, capital of Ningxia, into a Islamic financial center on the mainland. This aim is revealed in the documents relating to the establishment of an Islamic bank in the government’s working report this year.

A source from Ningxia branch of CBRC revealed, the pilot project would provide Ningxia with many opportunities to join some international Islamic financial organizations. This raised the possibility of Ningxia establishing regional trade with these organizations and Islamic countries. “It’s possible in the future that Ningxia could introduce an Islamic investment fund or Islamic bonds to attract international Islamic investors into local economic construction,” the source added.

Source: Economic Observer, by Cheng Zhiyun, Translated by Liu Peng – July 2, 2009

Ben Simpfendorfer

I was recently in Malaysia and spent a valuable hour with bankers from Maybank Islamic. In the process, I learnt something about Islamic finance that has implications for the entire region.

I had assumed that the bank’s Muslim clients would be the biggest buyers of Islamic wealth products. But it turns out I was wrong. It is the bank’s ethnic-Chinese clients who are account for nearly seventy percent of sales. How so? The bank’s Chinese clients are attracted by the straightforward design of Islamic wealth products. They are a far cry from the complex derivative products of the last few years that have made, and lost, a lot of money.

Take a “Structured Islamic Deposit”. It guarantees your initial investment, and then offers a return based on the performance of copper and wheat prices. Even a beginner can grasp the risks of investing in these two commodities. And Chinese investors like buying commodities. As a China economist, I am reminded of this fact daily.

Over the past six months, I have heard stories of Chinese manufacturers speculatively buying everything from copper, nickel, and iron ore, and storing it in warehouses around the country. It is a gamble. But they will have made a tidy profit in the past few months.

Now not everyone can afford to buy copper, let alone store the stuff in their backyard. However, it might be that the Islamic banks can offer Chinese investors the same wealth products on sale in Malaysia with a return linked to the price of copper, tin, or oil. If so, then China offers Islamic finance vast untapped opportunities.

There are a few obstacles. So far there are no Islamic banks in China. I heard from a Chinese banking regulator last year that officials were still shy about licensing a foreign Islamic bank. “It would take more time to assess the implications”, he said.

Maybe that time has arrived.

The Chinese Economic Observer is reporting that Ningxia province, a largely Muslim province in China’s west, will shortly trial Islamic financial services. The article says that the trial, if successful, will be expanded more broadly across the country.

There is still work to be done. Tax regulations in China do not favour Islamic finance. Officials claim there is a lack of qualified personal familiar with the principles of Islamic banking. IT systems also need to be overhauled. But it might be that foreign Islamic banks will find a warmer reception the next time they apply for a license in China. They could certainly lend a hand to Ningxia’s officials, helping to train their staff and overhaul their IT systems. Most importantly, they might just find a willing market for their own wealth products.

Neither do the products have to be labelled as Islamic. As Edwin Hitti, head of Hong Kong’s Arab Chamber of Commerce, said to me the other day, “You rarely hear Islamic terms used to describe financial products in the Middle East. There isn’t any need. It’s simply assumed that the product is Islamic”.

Maybank Islamic likewise sells their Islamic wealth products through the bank’s ordinary retail branches. Most ethnic-Chinese clients probably don’t realize what they are buying is in fact designed for Islamic clients. It certainly doesn’t have a “warning label” attached. They could adopt much the same approach in China.

From China to the Middle East there is a tendency to prefer investments that are tangible, whether it is copper or property. It could be that the financial links between China and the Middle East are stronger than many believe.

Source: Ben Simpfendorfer’s Silk Road Economy – August 26th, 2009

The New Silk Road is a ground-breaking analysis of the rise of the Arab world and its strengthening relations with China. The changes are not easy to observe. But Ben Simpfendorfer is one of the world’s leading experts on the region. He is the Chief China economist for a major global bank. Speaks Arabic and Chinese. And has lived in Beirut, Damascus, Beijing, and Hong Kong.

The New Silk Road is a mixture of analysis and first-hand accounts. It tells the stories of Arab traders in Chinese coastal cities. It explains why Arabic-speaking Chinese officials appear on Al Jazeera. It explores how Chinese traders are using Syria as an entry point to the Arab world. Each story is a thread in the new Silk Road easily overlooked by the English-language media.

The world’s centre of cultural and economic gravity is shifting. The East is rising again to challenge the West’s centuries-long dominance of global affairs. America has the most to lose, but Europe is also challenged. The New Silk Road provides a roadmap to the changes taking place. It is essential reading for anyone trying to understand what promises to be one of this century’s greatest stories.

The New Silk Road was published in April 2009 by Palgrave Macmillan. It will shortly be available in Arabic, simplified Chinese, and traditional Chinese.

Meezan Bank Limited has launched a new finished goods Islamic financing facility called Meezan Tijarah. The facility is available to SMEs and commercial/corporate customers seeking Shariah compliant working capital financing solutions. Meezan Tijarah would facilitate the customers that sell finished goods on a credit basis. The product can be used for providing financing facility in transactions where final / transformed goods are available for sale.

The facility will enable the customers to sell their finished goods, meet their working capital requirements and enjoy the benefits of cash sales. It is available for trading and manufacturing concerns and can also be used to facilitate customers to convert their interest based financing facilities to Islamic banking.

Read also: Meezan Bank Pakistan, The Premier Islamic Bank

Islamic banks will have to become increasingly innovative if they want to gain a bigger share of the market.

Islamic banking may have its strongest roots in the Muslim countries of the Middle East, but the industry’s innovation is focused on Pakistan, Bangladesh and South East Asia, where countries with both Muslim and non-Muslim populations present an interesting cross-over market.

In Malaysia, for example, non-Muslims are major users of Islamic finance products. Banks such as the Hong Leong Islamic Bank, and the Malaysian cooperative bank, Bank Rakyat, report a 70 per cent uptake of Islamic financial products by Chinese customers. So, why are non-Muslim customers attracted to Islamic banks?

Read: CPI Financial

EcoBank (Kyrgyzstan) the first Islamic bank in the former territories of the Union of Soviet Socialist Republics (USSR), looks forward to being a major player in finance, serving not only the Kyrgyzstan but also the region. Eighty percent of Kyrgyzstan’s 5.01 million population are Muslims and there are 100 million Muslims in the Commonwealth of Independent States (CIS) countries. EcoBank is the most profitable bank among Kyrgyzstan’s 22 banks. EcoBank converted its operations into an Islamic bank one-and-a half years ago as part of the republic’s adoption of a dual banking system comprising Islamic and conventional. The conversion was assisted by two experts, one of whom was a Malaysian. EcoBank’s preference is to have Malaysian Maybank to take up the stake as Kyrgyzstan is implementing the Malaysian model of Islamic economic system. Read : Bernama

Faysal Bank Ltd. plans to expand its domestic branch network in Pakistan and start a new Islamic division to take advantage of rising demand for Shariah-compliant products and farm loans. The bank will increase its number of outlets to 150 by December 2009, including smaller towns and villages, and intends to double its farm loans.

The bank plans to use Islamic products including cards and insurance developed by Shamil Bank BSC, a Bahrain-based lender that owns 68 percent of Faysal. The lender also plans to introduce Internet and phone banking. Read: Bloomberg

Prudential is looking at ways of expanding the group’s range of takaful products – which are compliant with sharia law – building on its experience in Indonesia, where 25% of all sales are sharia-compliant products. Half these takaful sales are to non-Muslims, consumers being attracted to the simplicity of the products and their ethical stance to investment.

The profits of the Pru’s Asian operations broke through £1bn for the first time in 2007, matching the profits achieved by the insurer’s traditional UK operations.
Read: Guardian.co.uk

Indonesia’s central bank

An Indonesian parliamentary working committee agreed to pass a new bill on Sharia or Islamic banking into law, a legislator said on Thursday, which would encourage growth of the country’s Islamic finance sector. Under the existing scheme, the parliament will hold a plenary hearing, which is expected to officially pass the bill agreed by parliamentary working committees.

The bill would allow foreigners to establish sharia banks in partnership with Indonesian citizens or local entities. It would also offer more flexibility to commercial banks, allowing them to convert their business into sharia-compliance banks. Read: Global Islamic Finance Center

Korea Development Bank

Korean regulators are seeking to revise laws to help local banks and brokerages tap the fast-growing Islamic financial market. The Financial Services Commission is planning to develop ways to allow local firms to trade Islamic financial products by next month. It will hold a seminar on Islamic finance with the Islamic Financial Services Board, a Kuala Lumpur-based standard-setting organization, in Seoul next January.

Korean companies have been effectively banned from advancing into the capital market in the Middle East because of the Islamic regulatory regime. The Islamic law prohibits interest payments in financial transactions, so debtors pay quasi-interest in the form of dividends or commissions to lenders instead.

The complex rules conflict with Korean financial and accounting standards, making it difficult for Korean banks to tap Islamic markets. But local players have been eager to advance into the Islamic capital market chasing the region’s ample petrodollars.

Read: Korea Development Bank

With the Global Sukuk (Islamic Bonds) Market expected to reach USD 200 billion by 2010, First Global Investments hopes to develop a fully fledged Islamic Bank and the first ever Sri Lankan Sukuk is expected to capture 50% of the Islamic Investments base in 2009. First Global Investments is currently working to secure mandates to raise USD 300 Million through issuance of Sukuk.

Islamic Banking is largely untapped and “many are unaware of what it is about…growth potentials are enormous and opportunities are largely untapped due to lack of understanding” said Mr. Thowfeek. “The industry is growing, in the last 33 years only 20% of the market potential has been tapped in to – the entire 80% is open”, he said, adding that “unlike conventional banking, the entire transaction is looked at from moral and ethical boundaries to safeguard the very fabric of society – Islamic banks are not charitable institutions…”

“All organizations are now picking up to have an arm of Islam banking……there is a demand and most conventional banks have been converted in the middle east” adding that “out of the top 10 global banks, 6 banks are involved to capitalize – for non-Muslims it makes commercial sense and the potential is very high.” He added that countries such as Thailand, London, Singapore, Hong Kong, India were all expanding Islamic finance institutions and therefore “no government, no regulator, no global or local financial institution can ignore the potential of Islamic banking”.
Read: Daily Mirror Online

The Sharia banking industry is developing rapidly worldwide. While it makes sense for global financial institutions to foster growth, exploit the opportunities offered by the Sharia banking market, and keep themselves regularly updated against the status of Sharia banking market in some of the emergent countries, it is worthwhile to keep eyes on developments in Sharia banking markets. Keeping the same fact in mind, RNCOS decided to research on one of the fastest growing Sharia banking destinations – Indonesia and launched a report, “Sharia Banking System in Indonesia”. The report gives an extensive research and in-depth analysis on the Sharia banking market in Indonesia and helps clients to analyze the opportunities being opened by the market. Based on this analysis, the report gives a future forecast of the market intended as a rough guide to the direction in which the market is likely to move. Read more: Bharat Book Bureau

Islamic banking in East Asia is slowly developing, but needs more action by regulators to establish legal and regulatory frameworks in order to emerge as a significant segment across the region, according to an analyst.

Aside from Malaysia, where the industry’s assets now account for 15.4 percent or about US$62 billion of the country’s banking system assets, its market penetration across the region has been somewhat patchy, said Christine Kuo, vice president and senior analyst of Moody’s Investors Service.

For instance, she said, while Islamic banking has achieved relatively high market penetration in Brunei and asset growth in Indonesia has been rapid (though off a low base), Islamic banking services available in the Philippines, Singapore and Thailand remained very small in terms of asset size.

“In Malaysia, there exists a natural business potential for Islamic banking services as approximately 60 percent of its population is Muslim, but it is government reforms during the past 20 to 30 years which have really helped develop the necessary legal and regulatory framework and institutions for the industry to flourish,” Kuo said in a report.

“The adoption of various incentives, including tax breaks, has also proven critical to nourishing the business,” she said. “In fact, the Malaysian experience over the last three decades demonstrates how instrumental regulators can and need to be in order to grow the Islamic banking sector,” she added.

This compares to Indonesia, where the industry’s market share is still less than two percent (about US$3 billion) despite rapid growth in recent years, Kuo said. “The low penetration in Moody’s opinion can largely be attributed to the slow pace of change to related regulations and institutions, although a few important changes seem to be gathering momentum,” she said. However, over the long term, Indonesia has huge potential as it is home to more than 200 million Muslims, the largest Muslim population in the world, Kuo said.

“The growing acceptance of Islamic banking even among non-Muslims, combined with announcements from Singapore, Tokyo and Hong Kong that they are to increase their participation in Islamic finance, have also underlined the industry’s potential,” she said.

However, as Islamic banks expand they will need to deal with the twin challenges of managing their rapid growth while competing against conventional banks, Kuo said. “The former includes addressing risk issues specific to Islamic financial institutions, such as concentration risk due to a limited scope of eligible asset classes, higher costs for managing liquidity and concentration of liabilities,” she said. “These can best be dealt with if the banks are not under undue pressure to grow assets too quickly,” she added.

At the same time, the average bank financial strength ratings (BFSRs) of Islamic banks in East Asia are likely to be lower than their conventional banking peers in the same country because of higher Syariah law-related compliance costs and lack of economies of scale, according to Kuo. “Nonetheless, the deposit and debt ratings of Islamic banks could be significantly higher than the levels indicated by their BFSRs, thanks to support from parents and regulators,” she said.

Source: Bernama – Kualal Lumpur (Malaysia)

HSBC Amanah Takaful Sdn Bhd, the Islamic insurance unit of HSBC Bank Malaysia Bhd, aims to double its new business premiums to about RM350mil this year from RM185mil last year, backed by a range of new products.

“We are on track in achieving our target as we have introduced a few innovative products early this year. We have four new products in the pipeline that would offer exciting prospects for our clients,” acting deputy chief executive officer Mohammed Muqeem said after the launch of its latest product, LifeSelect Single, yesterday.

He said the takaful industry was experiencing rapid growth and positive transformation with more than 133 takaful operators globally and about 10 locally.

However, the market penetration was still low and largely untapped, Mohammed added.

HSBC Amanah Takaful hoped to leverage on HSBC Bank’s customer base to reach a premium of RM100mil by year-end for LifeSelect Single, he said. The two-in-one investment-linked plan covers investment and protection needs as well as 36 critical illnesses, such as kidney failure and paralysis, on top of natural death and total and permanent disability.

LifeSelect Single also allows participants the flexibility to switch between fixed income and equity funds to suit their needs and topup their investments to take advantage of market fluctuations.

The Star (Malaysia) May 13, 2008

All the services currently provided by Indonesia’s third biggest bank by asset, PT Bank Rakyat Indonesia (BRI) will be transferred to its newly-acquired PT Bank Jasa Arta, which will later be renamed PT Bank Syariah BRI.

Bank Rakyat said it is seeking to accelerate growth in its sharia banking operations, given that stand-alone sharia banking businesses in Indonesia have performed better than the sharia units of conventional banks.

The three existing sharia banks — Bank Muamalat, Bank Syariah Mandiri and Bank Syariah Mega Indonesia – hold a combined share of 76 percent of the market in the world’s biggest Muslim country.

Comparatively, the sharia units operated by 74 conventional banks only have a combined market share of 24 percent. In 2007, the funding provided by sharia units and banks accounted for about 2 percent of total loans extended by the banking system.

Source : Global Islamic Finance Centre (GIFC)

Bank Indonesia headquarters in Jakarta

Whilst they are still strides away from the volume of Islamic investment seen in neighbouring Malaysia, Indonesia still has the largest number of Islamic financial institutions in the world. Despite being home to ten percent of the world’s Muslim population, Indonesia has so far held back, but Indonesia’s government is hoping new Islamic finance laws will entice foreign investment in the growing sector and secure a share of the $US700 billion global Islamic finance market.

“We do have three fully fledged Islamic banks, and about 25 Islamic divisions of conventional banks, and we have around 106, or 110 Islamic rural banks,” Dr Muhammad Syafii Antonio, from the Central Bank of Indonesia, recently declared. “So in terms of players, Indonesia is bigger, and in terms of market Indonesia is promising, so Indonesia is too big to be ignored.”

The Indonesian government is hoping that new laws will attract investment from the Middle East, and Dr Antonio says with the new changes in legislation, the share of Islamic investment on Indonesia’s national bond market could increase to 5 percent within the next two years.

Source: Global Islamic Finance Centre (GIFC)

Qatar Islamic Bank, the Arabian Gulf country’s biggest Shariah-compliant lender, plans to start an Islamic bank in Kazakhstan with the former Soviet republic’s government to tap its oil-fueled economic growth.

The plan is in its “very initial stages” and the venture may have start-up capital of $100mn, Ahmad Meshari Muhaidi, QIB assistant general manager and head of corporate banking, said on May 18,2008 in an interview at the World Economic Forum meetings in Sharm El-Sheikh, Egypt.

Kazakhstan’s $100bn economy has grown an average of 10% a year since 2000 as oil prices surged, triggering a construction boom and fuelling demand for goods and services. The economy will probably average growth of 6% annually through 2011, Finance Minister Bolat Zhamishev said.

Demand for banking services and investments that comply with Shariah’s ban on interest has increased as oil money floods into the Arabian Gulf. The global Islamic finance industry’s assets under management are expanding by 15% a year and may have topped $1tn, according to the Malaysia-based Islamic Financial Services Board. QIB on April 20 said first-quarter profit surged 69% to $125mn after it started an Islamic private equity fund and won a UK investment banking license for its European Finance House unit.

BTA Bank, Kazakhstan’s second-biggest bank by assets, last month said it may open an Islamic unit together with Dubai-based Emirates Islamic Bank as it seeks to attract new customers from among the country’s 7mn Muslims. It may sell as much as $150mn of Islamic bonds, chief executive officer Roman Solodchenko said.

Source: IslamicFinanceArabia.com May 19, 2008

Some leading Muslim businessmen from Uttar Pradesh have asked the government to allow Islamic banking in India. In this regard, a proposal has been submitted to the Planning Commission by them for setting up Islamic Development Bank, which would not charge interest on loans etc, under Islamic norms.

Islamic Development Bank is headquartered in Jeddah, Saudi Arabia, and it does not run from the interest income. Also, the money from the bank can not be used for financing businesses related to liquor, pornography etc. This is being run by the Organisation of Islamic Countries.

“There is a need to open such banks in India as Islam considers interest as ‘haraam’ (unethical) and therefore, Muslims are reluctant to take loans from the banks as interest is charged in such banks,” member of Islamic Development Bank Mohammad Ishaak told PTI News Agency.

He said one of the reasons for widespread poverty among Muslims was that they were not open to taking loans from the banks. He added that 140 million Muslims of the country will be able to do business once they start getting interest-free loans. “Therefore, we have sent a proposal to Planning Commission Deputy Chairman Montek Singh Ahluwalia so that we can also start an Islamic banking with the help of Islamic Development Bank in Saudi Arabia,” he said.

The Economic Times (India) 18 May, 2008

Several financial institutions from the GCC and South East Asia have announced they were moving into Pakistan to set up banks or insurance companies by teaming up with local entities or by going it alone. The likes of Al Baraka, Habib bank, Oman International Bank, Dubai Islamic Bank and most recently Maybank, have entered the country. Maybank said it was preparing to pay around $930 million to acquire a 20 per cent stake in Pakistan’s MCB Bank.

In the summer of 2007, Qatar Islamic Bank, the fifth largest Islamic bank in the world and the largest Islamic bank in Qatar, said it was planning to launch an Islamic bank in Pakistan with paid up capital of $100 million. Ahmad Barghout, senior manager of the corporate investment and developments group at Qatar Islamic Bank speaking to CPI Financial said, “Both Pakistani and GCC companies are opportunity driven. There are opportunities in both areas and I think investors are taking the long term view.”

While the current economic and political instability in Pakistan is causing concern in some circles, Mansoor Khan, managing director of Lahore-based law firm Khan Associates told CPI Financial that conventional banks would probably be more affected by the turmoil than their Islamic counterparts. “The conventional banks are western, risk-averse and do not understand ‘Pakistan risk.’ Islamic banks are primarily Middle Eastern or Asian and have a better understanding of the mentality of Pakistan. They will not be put off,” he said.

Source : Pakistan First

“Islamic Shariah scholars have led the way in innovation. Investors now demand more than just debt finance (lending and borrowing) in their products. They participate in the assets and this creates real economic value,” says Shaikh Yaqouby, an internationally-acclaimed Islamic scholar and teacher of Tafsir (a scientific study that focuses on the interpretation and explanation of the Holy Quran) based in Bahrain.

Read:
Islamic Bank of Asia (Singapore) sees increasing investor interest for Islamic finance (IslamicFinanceArabia.com)

Islamic finance in China will be a two-way process both for investment into the Middle East through sukuks and for investment into the growth story of China.

A high-level delegation of Hong Kong financiers visits Dubai to promote the Chinese special economic zone as a gateway to Shariah-compliant fund-raising and investment in China. Read the article at Peter J. Cooper’s Weblog

Peter J Cooper is a freelance financial journalist based in the Dubai Media City, and a former partner in the Middle East’s best-read English language website http://www.ameinfo.com. He is also a columnist for http://www.business24-7.ae/cs the new UAE business newspaper.

Hong Kong’s Securities & Futures Commission (SFC) signs an Islamic finance pact with the Dubai Financial Services Authority (DFSA). The memorandum of understanding calls for mutual cooperation on capacity building and human capital development in Islamic finance, as well as the promotion and development of their respective Islamic capital market segments. Under the MOU, both parties will examine the possibility of establishing a framework for the mutual recognition of their regulatory regimes on Islamic funds to facilitate cross-border marketing and distribution of such funds. Source: Asian Investor April 7, 200

Asian Finance Bank, one of three foreign Islamic lenders in Malaysia, plans to set up an Islamic property fund of up to $500 million in 2009 to tap what it considers an undervalued market. The bank, owned by Qatar Islamic Bank, RUSD Investment Bank Inc of Saudi Arabia and Global Investment House of Kuwait, also plans to set up a fully-fledged Islamic bank in Indonesia by 2010 as part of its effort to build in-roads into Asia.

Faisal Alshowaikh, chief executive of Asian Finance Bank, told Reuters in an interview the property market was relatively subdued following the global credit crisis, but he saw potential for a property fund in Malaysia. “Right now the property market has suffered from sub-prime, so it is not something I would pursue aggressively,” he said, referring to defaults on low-end mortgages in the United States that have rattled markets worldwide. “But this is something we have in our minds to set up. When you look at Indochina and other countries like Korea, Singapore, Hong Kong, I think the property market is very much undervalued in Malaysia.”

The global Islamic finance market is one of the fastest growing in the world. Islamic assets are growing at an annual pace of 20 percent and are set to hit $2 trillion in 2010 from the current $900 billion, largely thanks to a flood of petrodollars, Ernst & Young said in February.

Asian Finance Bank currently has a representative office in Indonesia, a country analysts say has the potential to become a major player in global Islamic finance because around 85 percent of its population is Muslim. “It is a big market for Islamic banking which needs to be aggressively explored,” Alshowaikh said on the sidelines of an Islamic banking conference in Jakarta. “We have plans to make this representative office into a fully-fledged Islamic bank in Indonesia. In this part of the world, with a population at 229 million — and a relatively small percentage of the market here is Islamic — I believe we can do more on the retail side and do more on wealth management.”

Indonesia’s Islamic finance market lags neighbouring countries Malaysia and Singapore because of tax and accounting framework issues. But analysts expect sharia financing to take off after Indonesia’s parliament passed a long-awaited sharia finance law last month. Indonesia’s central bank says the Islamic banking industry in the world’s most populous Muslim nation is set to meet its target of a 10-15 percent share of national banking assets by 2015 from less than 5 percent now.

Asian Finance Bank was incorporated in Malaysia in 2005 and aims to develop a regional banking network providing a wide range of services. The chief executive said the bank would like to establish representative offices in Singapore and Brunei, with its Kuala Lumpur office servicing China, South Korea, Vietnam, Myanmar, Laos and Cambodia as it moved to expand its Asian presence. The bank’s website says Qatar Islamic Bank is its biggest investor with a 70 percent share in the company. RUSD Investment Bank Inc has 20 percent and Global Investment House has 10 percent.

The Guardian (Reuters) May 9 2008 – Reporting by Liau Y-Sing; Writing by Clarence Fernandez; Editing by Neil Fullick