Islamic banking less risky
Afaq Khan
Islamic banking is now an issue of great interest for many, including Western non-Muslims, because the system still remains almost unhurt by the ongoing global financial crisis.
Banks from the US to UK and China to India also prefer such banking.
“Islamic banking operates in real economy. This banking has no room for gambling, speculation, excess leverage, or the greed for windfall profit,” said Afaq Khan, chief executive officer, Islamic Banking of global finance giant Standard Chartered Bank.
Khan who was on a short visit to Dhaka had a conversation Tuesday with The Daily Star at StanChart's Bangladesh headquarters, on prospects of Islamic banking in Bangladesh.
He joined StanChart in 2003 with a mandate to launch the Islamic business division for the bank. Since then, he has been responsible for the strategic build-up of a global Islamic banking business covering retail, corporate and investment banking with a wider product capabilities and award winning solutions.
Khan thinks the less risk is a major factor that contributes in growing Islamic banking.
“Conventional banking is riskier than Islamic banking because it deals with debt trading and keeps itself in market speculation, which European and American banks experienced,” he noted.
Another interesting feature is Islamic banking remains immune from the recession fallout, as the global financial institutions experienced, especially in the US and Europe.
Demand from the world's 1.66 billion Muslims for investments compliant with their beliefs is soaring. Assets that go by Islamic law are currently estimated at $900 billion-$1 trillion. The annual growth rate is 15-20 percent.
Khan, who has 20 years of banking experience, believes Bangladesh could be a big market for Islamic banks as over 85 percent of the country's nearly 150 million people are Muslims.
But he feels the business prospect would depend on diversification of products, services and the adequate training the officials concerned require.
“People here take much interest on the Islamic banking system. Some 99 percent customers prefer such banking,” observed Afaq Khan, who looks after StanChart's Islamic banking services globally.
"Saadiq" is the brand of this bank's Islamic banking, which has rolled out around 100 products and solutions relating to consumer and wholesale banking.
An Islamic bank traditionally generates its profits from Sharia-compliant investment activity. This profit is shared back with the bank's customers at a pre-agreed ratio. An account holder is entitled to a share of these profits according to the funds he holds in his account.
This banking industry in Bangladesh also continues to show strong growth since its inception in 1983.
At present, out of 48 banks, 6 private commercial banks are operating as full-fledged Islamic banks. Besides 21 branches of 10 conventional banks are engaged in Islamic banking, Bangladesh Bank data shows.
Total deposits with Islamic banks and Islamic banking branches of the conventional banks in the country stood at Tk 34,730 crore by the end of June 2008. This deposit accounts for 24.4 percent of the deposits with all private commercial banks and 16.1 percent of the deposits with the total banking system.
Around Tk 34,910 crore is the total investment of the Islamic banks and Islamic banking branches have made, which is 26.8 percent of all private banks and 19.3 percent of the entire banking system.
Afaq Khan said Islamic banking differs from conventional banking, primarily because it does not look to charge or deliver interest.
“None can 'make money from money', instead, profit is generated through investment and trading,” Khan told The Daily Star.
The official said this return rate has to match the level of return provided by interest levels of conventional banking.
The global banking giant targets Bangladesh as one of the potential markets for its Islamic financial products and services.
As part of the move, the bank on Tuesday launched a home loan scheme titled "Saadiq Home Finance" in Dhaka.
“We are willing to offer more Islamic banking solutions to Bangladesh customers to cater to their needs,” Khan says.
Kamran Sunjoy Rahman, head of StanChart's Islamic banking for Bangladesh, said launching more financial solutions to help customers are now under the StanChart's financial management planning.
Rahman said the bank's next plan is to launch Shariah-based business account for small and medium enterprises.
“Also, we eye Islamic investment banking,” he added.
Sandeep Bose, head of StanChart's consumer banking, Bangladesh, Nepal and Sri Lanka, said “Saadiq” is growing faster than the bank's conventional banking. But he declined to disclose the share of Saadiq in the bank's total business portfolio.
On Islamic banking training for officials, Afaq Khan said such training is internally arranged.
“Courses are developed on the basis of key Islamic products and wider areas from a structuring, developmental, accounting and pricing viewpoint,” he added.
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