Kuwait Islamic Banking and Finance: Future is Bright

The crisis shed a light on the Islamic Banks , which by nature are not allowed to operate with derivatives, hedge funds or high-yield bonds. Islamic law or Sharia forbids interest (riba), speculation (mayisr) and uncertainty in contracts (gharar).

According to the Kuwait Investment Report, assets of the top 500 Islamic banks expanded 28% to a total of 822 billion dollars in 2009. “Islamic banking and finance started inferior thirty years ago but started to position itself very well within the banking and investment industry.  It dominates the GCC and MENA region and has proved that its underwriting criteria are much stronger than its peers on the conventional side. Also, they don’t deal with derivatives or hybrid securities, which are the cause of the last fourteen months’ problems,” says Abdul Aziz Al-Mazooq, CEO of Muthanna Investment Company.

Sharia banks were not immune against the crisis. Kuwaiti Islamic lender Boubyan Bank announced on 24, February, 2010. that it had posted a loss of 179 million dollars in 2009 against a profit of 6.4 million dollars in 2009

Islamic Banking is not concentrated in the Middle East anymore. It is an international phenomenon. Kuwait’s ruling family has a share in the English Islamic financial institutional  Bank of London and the Middle East (BLME) which was launched in 2007. BLME focuses on Islamic investment and corporate banking. Kuwaitis are also proud of the fact that one of the leading Islamic scholars, Dr. Mohd Daud Bakar from Malaysia received his first degree in Islamic Law (Sharia) from University  of Kuwait in 1988. Dr. Bakar consults for over a hundred banks, asset managers and insurers worldwide.

With so many market players in place, isn’t the once locked-up market becoming over banked? ”I do not believe the market is really over banked,” Gulf Bank CEO Michel Accad tells Marcopolis.net. “Compared to Lebanon, for instance, we have a not very dissimilar profile in terms of inhabitants and maybe a lower GDP, but Lebanon has a hundred banks and many of them are very successful.” Lebanon, once dubbed the “Switzerland of the orient”, indeed saw its economy grow by 9% in 2009.

Global has been present in the centre of Kuwait City near the three-star hotel “Al-Waha” for a while, but in 2006 the firm shifted to its own Global Tower into the heart of Kuwait City.

A free zone like in Dubai does not exist (as yet), but the country has always adopted standards such as Basel 2 against money-laundering, and other international standards. After the fall of Saddam Hussein’s regime in 2003, NBK quickly moved to open a new branch in Iraq’s capital Baghdad. So did many lawyers and consultants. NBK is also famous for product innovation. With NBK Diners Club International Card, for example, its customers can access first class lounges at dozens of airports worldwide while travelling.

“What we need to see are oil prices staying in the range above $70 dollars per barrel because this gives enough cushion to enable to government to continue its fiscal stimulus program”, Ms. Maha Al-Ghunaim says. The chairperson is one of the most influential business leaders in the GCC.

She even sees positive aspects in the current situation for publicly listed banks. Maha Al-Ghunaim : “Valuations have reached a level that is much more sensible for people to buy.” But: “In order to stimulate growth the government should invest in infrastructure projects and execute the plan more thoroughly”, Michel Accad is convinced.

The signs are encouraging that the price for black gold will even stay above U$80 per barrel. Chances are high that some gulf countries will emerge stronger from the crisis this year. And one of these countries will be Kuwait for sure. You can bank on it!