Section 11: How To Run An Islamic Bank

With compound annual asset growth of 23.5% over the past five years, Islamic finance is finally getting the attention it deserves. Banks in geographies with Muslim populations must now consider adding sharia-compliant services or partnering with an Islamic institution.

The financial crisis highlighted the advantages of Islamic banking practices, writes Humphrey Percy: risk aversion, a ban on short-selling, strict limits on derivative transactions, lack of leverage, margin call liabilities and hybrid capital.

But despite its more traditional approach, there are still significant challenges for Islamic banking. Sunando Roy takes an honest look at some of these, including the lack of standardised products, higher transaction costs, insufficient price data, a lack of liquid instruments and transparency.

Joseph DiVanna suggests that banks look more carefully at the needs of the potentially huge Muslim audience. By learning more about their customers’ financial lives, they will be able to offer better products. Some banks are already making headway with innovative and well-targeted sharia-compliant products, while others are taking their first steps outside their own national markets.

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