The global Islamic banking industry has witnessed unprecedented growth of 10 to 15 per cent a year across the board. This growth in the Islamic Financial Institutions (IFIs) has led the Islamic sukuk market to reach to the new heights of development from the size of merely $8 billion in 2003 to $70 billion in 2007 with the projections of doubling the size to $140 billion in three years, a senior government official said yesterday.The Minister of Finance Shaikh Ahmed bin Mohammed Al Khalifa, in his opening remarks at the ninth annual AAOIFI-World Bank Conference on Islamic Banking and Finance, said that the enormous growth also poses serious challenges to the industry players.
Organised by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in partnership with the World Bank, and is being held under the auspices of Central Bank of Bahrain. The Governor Central bank of Bahrain Rasheed Al Maraj also highlighted the importance Islamic finance and challenges being faced by this industry.
The minister said: “If we see the scope of development and growth of Islamic sukuks, it is expected the size will be doubled in next three years. “The success achieved by Bahrain in the Islamic banking sector reflects the excellent policies followed by the Kingdom in the financing and banking fields in general, including transparent procedures, which are appreciated by international business and finance entities.”
Shaikh Ahmed, who also honoured the graduates in the Islamic accounting after the opening speech at the conference of Islamic finance and banking, said that such success also mirrored the professionalism of the Bahraini workforce. He said the Kingdom was keen on developing their skills constantly by using the most advanced techniques at training courses.
Shaikh Ahmed said the Islamic finance and banking industry was growing at a rapid pace and there was a need to close in the gap in human on human resources and product innovation fronts.
The minister said that he was proud of the fact the Kingdom was hosting the event which would discuss the infrastructure of the Islamic finance sector including international finance, the categorisation of financial markets, general council for Islamic banks and firms, centres for administering the flow of funds in addition to a number of Islamic banks such as Takaful. Shaikh Ahmed underlined the importance of upgrading and using new Islamic investment techniques.
Shaikh Ibrahim bin Khalifa Al Kahlifa, the undersecretary at the Ministry of Finance in his speech as secretary general of AAOIFI said that the annual conference has emerged as one of the most effective and influential platforms for the Islamic banking and financial sector. Shiakh Ebrahim underlined the importance of institutions like AAOIFI which had so far issued 68 global standards.
He added: “These standards have been implemented by the Islamic banks and financial institutions across by the global industry showing the importance of these standards aimed at bringing harmonisation in the Islamic banking industry. The number of AAOIFI standards will rise to 90 by the end of the year.”
The general secretary of the council for Islamic banks and financial institutions (CIBAFI) Dr Ezzeddine Khoja said the assets of Islamic banks and banking institutions reached $1 billion in 2006, recording a 40 per cent growth rate against the 2005 figures.
Khoja expected that the 40 per cent growth would persist until the end of the current year. “The GCC region is the hub of Islamic banking,” Dr. Khoja said adding that the record growth of the sukuk market in the past three years demonstrates the viability of tradable Islamic financial instruments.
He added that the level of Islamic banking growth in the gulf region would lead to the transformation of traditional financial institutions into full Islamic ones by 2015.
This shift will cover from 15 to 25 per cent of the traditional banking establishments in OIC member states situated to the South of Asia and will not exceed two per cent in other OIC states except in the Gulf. He affirmed that sukuk will gradually substitute the traditional assets as the majority of service companies operating in the gulf prefer using them in their daily dealings.