A Blossoming Interest

Islamic Banking

Qatar, and indeed the world, has seen a boom in its Islamic banking sector. Now accounting for over one-third of the country's banking market and set to continue growing in double figures, sharia-compliant banking is transforming the industry and attracti


Islamic banking is compliant with the principles of the sharia, or Islamic, law. The main element of conventional banking that is prohibited in Islam is interest, or riba, it being deemed immoral for an individual to make profit out of lending to another. In practice this implies that interest cannot be charged on mortgages nor paid on savings or current accounts. To be sharia compliant, a bank must also not make any investments in goods and services that are forbidden by the religion, such as alcohol, non-halal meat products, or gambling. The concept is applied to financial instruments such as Islamic bonds, known as sukuk, as well as to Islamic insurance, known as takaful. Both are booming markets in Qatar.


Modern institutions providing Islamic banking services emerged at the end of the previous century and Qatar Islamic Bank, the country’s first such institution, was founded in 1982. Today, it is the largest in the industry with capital amounting to $632 million at the end of the first half of 2013 and total assets reaching $21 billion as of end-2013. The bank currently has a 35% share of the Islamic sector and a 9% share of the banking market overall. Another major player in the market is Masraf Al Rayyan, which declared a net profit of $466 million for the 2013 financial year (a growth of 13.2% compared to 2012) and assets worth $18.2 million (up 7.98% from the previous year), making it the country’s second-largest Islamic bank. Barwa Bank, established in 2009, is Qatar’s newest Islamic bank and has experienced the biggest YoY growth in terms of profitability and asset growth. In 2013, they achieved a net profit of $138 million (an increase of 46% compared to the previous year) and total assets amounting to $9 billion (an increase of 33% compared to the previous year).


The rising popularity of Islamic banking is not confined to countries where Islam is the dominant religion. South Africa recently became the third non-Muslim state to issue sukuk, joining the UK and Hong Kong. Contrary to what some may belief, non-Muslims are also eligible to purchase Islamic financial services, and may choose Islamic over conventional banking for a number of reasons including its profit-sharing feature, which links customers’ payoff to the bank’s performance, its lower risk taking, its more prudent management, which guarantees greater stability and robustness to financial crises, and principles founded on religion that go beyond simple business ethics. “We are not selling a religious product; we are selling a different way of banking,” says Eslah Assem, CEO of First Finance Company, a member of Barwa Bank Group. “After the financial crisis, people started to recognize that this model of banking is different… they discovered that it is less risky, and they discovered that it is more transparent.” A change in the way that Islamic banking is perceived will no doubt contribute to the rise in demand for sharia-compliant financial services in the coming years.


The global market for Islamic banking will continue to see rapid expansion, with a forecasted annual average growth rate of 19.7% until 2018, according to consultancy firm Ernst & Young. Qatar, as one of the leaders in Islamic banking, will capitalize on this success both locally and internationally. Masraf Al Rayyan already successfully acquired the Islamic Bank of Britain in 2014, and the government of Tajikistan recently passed legislation that would allow Qatar to set up the Central Asian country’s first Islamic institution. Although the share of Islamic banking in the market is still small compared to conventional banking, it has a much greater potential for growth. The financial sector has become one of the main driving forces of the Qatari economy and plays an increasingly important role in the country’s diversification strategy. With Islamic banking at the forefront of this growth, investors will be keeping an eye out for opportunities in this sector.

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