Viewpoint: Islamic finance and the MENA region
Ashar Nazim explores the role that Islamic finance can play in revitalizing
Islamic finance is another area that may enjoy some uplift as a result of the Arab Spring. Industry forecasts suggest that global Islamic banking assets among commercial banks will reach US$1.1t in 2012, whereas it stood at US$826b in 2010.
As new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to US$990b by 2015.
In a number of countries where there is a large Muslim population, the regimes have been slow to introduce sharia (Muslim law) compliant Islamic banking. However, as a result of the uprisings, many of these governments are in listening mode. Some have initiated dialogue or even implemented Islamic banking reforms. For example, the Tunisian government is considering the launch of a comprehensive framework to introduce Islamic banking to the country.
Many markets see this as a way to encourage a more inclusive financial system which will help broaden the formal economy by bringing in the previously unbanked segments.
The MENA region’s geographical proximity to the Gulf region is another key driver of the prodigious growth of Islamic finance. Historically, the Gulf has been the source of both intellectual and financial capital, which has helped the Islamic banking industry to grow. Within the Gulf Cooperation Council (GCC), almost one-quarter of the banking system has transferred to the Islamic model.
This is important because investors understand that if they want to attract investments from the GCC, they need to structure their deals in a sharia-compliant way. They can then attract both conventional and Islamic funding.
Ashar Nazim leads the Global Islamic Banking Excellence Centre at Ernst & Young.
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