In a speech given today for the INCIEF conference "Islamic Finance: Issues and Challenges of Co-existence in an Entrenched Conventional System", the governor of Bank Negara Malaysia, Dr. Zeti Akhtar Aziz, commented that:
"Islamic finance must promote greater financial inclusion involving all levels of the community. Opportunities also need to be created for Islamic financial products to have an outreach to the small and medium-sized enterprises. Moreover, financial instruments structured under the Salam, Istisna' and Musyarakah [Musharaka] contracts need to be designed to stimulate activities in those sectors such as agriculture and manufacturing where there is limited participation by conventional finance. We need to reach those segments of society and economic activities that have not fully benefited from the success of Islamic finance."
This is one area in which the Islamic financial industry can successfully compete with the conventional financial industry by offering distinctive products that are not just Shari'ah-compliant versions of conventional products. Within the SME market (as well as in microfinancing), if Islamic banks can develop monitoring systems where borrowers have the incentive to accurately report their profits (a principal-agent problem), then Islamic banks may be able to serve this market better than conventional banks.
Bidding war for Rashid Hussain could end today
The Financial Times reports that Utama Banking Group could decide as early as today whether to sell its 32% controlling stake in Rashid Hussain Bhd (RHB) for RM2.16 billion ($618 million) to Kuwait Finance House. If this occurs, RHB is expected to sell its 65% share of RHB Capital to its shareholders, effectively ending Malaysian firm EON Capital's attempt to purchase RHB Capital and RHB for RM8.8 billion ($2.52 billion). RHB Capital is the parent company of unlisted RHB Bank and RHB Islamic Bank. Kuwait Finance House is limited to holding 30% of RHB under current foreign ownership rules, but they have the edge because they plan to clear the firm's debts of RM3.9 billion ($1.12 billion) as part of their promised investment of up to RM12 billion ($3.43 billion). One of the challenges, however, for KFH if they gain control of RHB is to deal with the 90 percent of interest-bearing assets. The company plans to convert the bank into a mega Islamic bank but has not laid out a specific plan for how this will be accomplished.
Mega Islamic Bank still planned
CIBAFI announced last year that it would oversee the opening of a mega Islamic bank during 2006, and today claimed that it still plans to do so and is working with the Islamic Development Bank to create an Islamic bank based within one of the Gulf Coorperation Council (GCC) countries or Malaysia.
BUK may offer Islamic banking classes
The British University of Kuwait, which is expected to open in 2007, may offer program of study in Islamic banking by 2008.