Chinese Interest in Islamic Banking

By Lahem al Nasser

Riyadh, Asharq Al-Awsat- We will not be able to say that Islamic banking has become a strong competitor to conventional banking unless it is able to surmount the Great Wall of China and settle upon the Chinese mainland and take advantage of what is considered to be one of the world's fastest growing economies. According to the World Bank, the Chinese economy is expected to experience a growth of 6.5 percent –during the [global] financial crisis – while during the same period of time the World Bank expects world growth not to exceed 1.5 percent. China is considered to be the US's largest creditor, and its investment in US bonds exceed one trillion dollars, while its own monetary reserve stands at nearly two trillion dollars, according to the CNN Arabic website. A Price Waterhouse report predicted that by 2050 the Chinese economy would surpass the [combined] economy of the G7 countries. The report based its prediction on Chinese purchasing power, which is founded upon the savings culture that is prevalent among the Chinese population, and their aversion to debt. China is also considered to be one of the more attractive countries for foreign investment which helps to finance this rapid growth. By the end of 2007 foreign investment in China reached approximately $74 billion.

According to Western estimates, China has a Muslim minority in the Xinjiang province with a population between 70 and 90 million. Yet until today, Islamic banking has confined itself to standing on the Chinese borders [and looking in]. Islamic Banking has a presence in Singapore – a country which borders China – as well as Hong Kong – the island under Chinese control – but has not crossed onto mainland China. To be honest I cannot find any justification to the long delay of Islamic Banking in making this crossing, especially since the Chinese government has been making overtures to this industry. This can be seen with regards to the People's Bank of China gaining membership to the Islamic Financial Services Board [IFSB]. The IFSB – whose premises are in the Malaysian capital Kuala Lumpur - is an international body concerned with promoting, strengthening, and developing standards of Islamic financial services.

China – from time to time- has sent positive messages to the Islamic banking industry; this includes monetary authorities in Hong Kong attempting to provide a sound environment for Islamic banking operations by amending their laws to the specifications of Islamic banking, especially with regards to Islamic Sukuk [bonds], as well as the establishment of Islamic indexes on the Hong Kong stock exchange. More



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Islamic Banks Unaffected by Global Financial Crisis

General Manager and board member of the Arab Finance House Dr. Fouad Nadim Matraji explained that Islamic banks have not been affected by the mortgage crisis that afflicted the international financial markets and that they are largely immune against such crisis thanks to inherent factors within Islamic banking. The most important of these factors is the prohibition of debt trading, taking precautions against money laundering, as well as the official and professional restraints upon which banks are based such as caution against embarking upon projects that entail financial difficulties and risks.

Dr. Matraji explained that Islamic banks have several alternatives [to conventional banking products] such as Ijarah Bitamlik [a renting contract that ends in ownership], Murabaha etc. which demonstrate that Islamic banking is a sound and systematic alternative banking system that others should take as an example. Islamic finance is expected to increase on the international level and its number of customers is also expected to rise as they search for an alternative [banking system].

Matraji added that Islamic banking is distinguished by a commitment to uphold integrity and its distancing from risky projects. He pointed out that this crisis has caused significant global inflation in world banks because they buy debts and enlarge accounts without tangible transactions taking place or without brokers being aware of them, highlighting that Islamic banks do not engage in such ventures.

Matraji added that only the profits of Islamic banks could be affected by the international financial crisis, but not the capital, which is protected by Islamic banking unlike conventional banks.

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Sallam Alaykum / Peace be unto you

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