DEAD SEA - Bankers and experts on Tuesday said making use of the still largely untapped resources of Islamic finance and banking is an optimal solution in light of the global economic downturn.

Islamic banking and finance proved to be the least vulnerable to losses and the least affected by the negative impact of the global financial crisis and promises major opportunities for growth, they said at the inauguration of the first Islamic Finance and Investment Forum for the Middle East, held on the eastern shores of the Dead Sea.

"In this challenging global economic and financial environment, Islamic finance has remained dynamic with a steady pace of innovation and growth," Central Bank of Jordan (CBJ) Governor Umayya Toukan said at the inauguration of the two-day forum.

"The accelerated development of the Islamic financial markets and the supporting international Islamic financial architecture as well as the trend towards greater liberalisation have enhanced the integration of Islamic finance into the international financial system," he added.

In order for Islamic finance to truly become international, allowing its share to go beyond its present level of around 1 per cent of all global banking activities, Toukan stressed that its standards should be consistent with international benchmarks such as Basel II.

Fouad M. Alaeddin, Middle East managing partner head of markets, told The Jordan Times that Islamic banking has great potential, especially since the sector was less impacted by the crisis than the conventional banking sector.

"There is a huge potential for growth in the Islamic banking sector. It is safer as it is asset-based and does not rely on derivatives, etc... and it also takes share in the risk. In addition, the whole concept of Islamic banking goes with stricter banking regulations, which seems to be the trend after the crisis," Alaeddin said in remarks following the inauguration of the event.

"The sector is still somewhat new as it is about 30-40 years old and is still untapped," he added.

According to Minister of Finance Mohammad Abu Hammour, the Islamic banking sector witnesses an annual growth rate of 10-15 per cent and there are currently over 300 Islamic banks in more than 50 countries. There are also more than 250 investment funds that operate in accordance with Sharia rules, with total assets of about $850 billion.

In Jordan, there are currently two Jordanian Islamic banks with assets amounting to around 11 per cent of the total assets of the banking system, deposits with a market share of around 12.5 per cent of total bank deposits, and credit facilities accounting for around 15 per cent of total bank credit, according to Toukan.

Two new Islamic banks were recently granted licences to operate in Jordan: Jordan Dubai Islamic Bank, which started its operations in Jordan in January 2010, and Al Rajhi Bank from Saudi Arabia, which is expected to start operating in the next two months, Toukan added in his speech.

In a speech read on his behalf by the ministry's secretary general, Abu Hammour stressed that the developments the Islamic banking sector has witnessed in the past 40 years are "pioneering" and "unprecedented" in the modern financial market.

According to Abu Hammour, experts agree that Islamic banks, when compared to conventional banks, managed to avoid the consequences of the global financial crisis that affected many countries and caused many banks to collapse.

The minister called on Islamic banks to seize the opportunity created by the crisis by creating international investment banks that provide a new vision to the world and continue development and modernisation in their services.

It is also important to foster and strengthen the Islamic financial industry to be able to maintain its growth and to utilise the money available in the Arab and the Muslim worlds, he added.

In a speech at the forum, Moussa Shehadeh, deputy chairman of the Jordan Islamic Bank board of directors, reviewed obstacles facing the Islamic banking sector and called for supporting it and taking the "special" situation of these banks into account.

In this regard, Toukan said the Islamic banks in Jordan should have special treatment in terms of monitoring and international auditing standards, adding that the CBJ is working on these aspects so the Islamic banking industry assumes a larger role in the global banking system, the Jordan News Agency, petra, reported.

He said if the situation necessitates having special legislation for the Islamic banking industry, the CBJ is ready to look into that.

Experts from several countries are taking part in the event, where several issues of concern to Islamic banking and finance will be discussed.

By Mohammad Ghazal

© Jordan Times 2010