By Yusuf Mansur

A majority of pundits see little to no adverse effect of the global financial crisis on Islamic banks. One would think that Islamic banks are poised to surge as leaders in the global banking industry. This would only be true, however, if Islamic banks and the regulatory authorities seized the day and better marketed Islamic banking services.

Islamic banks are based on Sharia, the body of Islamic law. They share common traits: do not charge interest, instead they share in the venture as partners, consequently they are bearers of risk; deal basically in goods and services such as real estate and commodities; avoid ventures that are prohibited by Islamic doctrine; rely on their own deposits to finance their partnerships with the “borrowers”.

Although the practices of Islamic banks are long established and go back to the beginning of Islam and the birth of Sharia, this banking system saw its birth in the mid-20th century. It grew by an average of 15 per cent per annum in the last few years and it is now a trillion-dollar industry.

Contrary to what one may think, Islamic banks do not exist only in Arabic or Islamic countries.

The UK has more than 20 banks offering Islamic banking services; five are stand-alone Islamic banking institutions. France has four Islamic banks, Switzerland five and Luxemburg four.

In the aftermath of the global financial crisis, the Islamic Dow Jones Index only fell by a few points, while regular banks lost one-third of their value by the end of January 2009. Thus, Islamic banks, which avoid interest rates, derivatives and risk insurance, seem to have been cushioned from the crisis. Zero primes and subprimes did not affect them since they do not use interest rates.

It is understandable that some sceptics, mainly Islamophobes, would suggest that Islamic banks will be hit soon, as real estate prices have plummeted since real estate makes up a sizable majority of Islamic banking portfolios. But this has not happened even though real estate worldwide has gone down. And frankly, sceptics have been few.

Capital and investment know no religion or politics. So why aren’t queues of investors, depositors and borrowers cramping the doors and halls of Islamic banks? Possibly because there is no consensus in the industry on all the products being totally in line with Sharia.

Furthermore, Islamic banks are considered bureaucratic by modern banking standards and require a lot of paper work (not an alien trait to regular Jordanian banks); and because some central banks refuse to recognise them as banks (which can be a blessing in some countries), even with their trillion-dollar assets.

Instead of squabbling about products and whether assets are perfectly Islamic, the obvious thing for Islamic banks to do is to agree on an absolute minimum standard that would qualify such banks as Islamic and let their clients decide on their own regarding the rest of products. This would enable cooperation and help increase the size of banking units.

The time is ripe for these banks to aggressively market their success and the many creative products they have invented, including Islamic credit cards.

But will they do it?

According to most international analysts, the financial crisis will wind down by 2011 at most. Between now and then lies their opportunity.

Questions and comments can be directed at: ymansur@enconsult.com