Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?

Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?
By Faten Jabsheh, Weam Behbehani, and Shaima Al-Shamali

Abstract: "The steady expansion of Islamic banks (IBs) has been the hallmark of the Muslim financial landscape of the 1980s and 1990s. With a network that covers over 60 countries and an asset base of over $166 billion, Islamic banks are currently playing an increasingly significant financial and developmental role in their respective economies. Islamic banking has gained increased attention in the GCC (Gulf Cooperation Council) over the past number of years, capturing a growing 13% share of total Islamic banking assets around the world. This paper questions the growth of Islamic banking activity in the GCC, and focuses on developing prospects for one GCC country, namely Kuwait. Using detailed survey instruments regarding the provision of various Islamic banking services, the results of this study affirm the hypothesis that Islamic banking is claiming a growing market share and consumer market in Kuwait."

Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?

Development of Islamic Banking with Reference to UAE

Development of Islamic Banking with Reference to UAE
Fayaz Ahamed
June 2010

Abstract: Banks play an important and active role in the economic development of a country. The global financial system (GFS) is a financial system consisting of institutions and regulators that act on the international level, as opposed to those that act on a national or regional level. Islamic banking is a classical concept. Islamic banking system has emerged as a competitive and a possible substitute for the conventional banking system during the last three decades. Islamic Banking is no longer limited to specialized institutions and has expanded both geographically and in product richness, with structured credit finance receiving most of the attention. Greater importance of the General Council for Islamic Banking and Finance Institutions (GCIBFI), the Islamic Financial Service Board (IFSB), the Islamic International Rating Agency (IIRA) and the Accounting and Auditing Organization of Islamic Finance Institutions (AAOIFI), will add consistency in accordance to Islamic laws [shariah] interpretations by religious boards and the primacy of bankable governing law as a matter of form remain essential to further growth of Islamic banking.


Islamic banking transactions are governed by the codes of the shariah, which prohibits interest and regulates that income, must be resulting as return from capitalist investment. This present study analyses the Islamic banking operations currently practiced in Global banking system. This paper explains the fundamental legal principles of Islamic Banking, which includes a brief review of the current state of Islamic banking development and provides the analysis of Islamic Banks with their acquired results. The paper suggests a Global organization that would allow Islamic banks to develop in compliance with its Islamic laws [shariah] principles.

Development of Islamic Banking with Reference to UAE

Grooming Gen Y for Islamic Finance - Tweeting Islamic Finance

Grooming Gen Y for Islamic Finance
Tweeting Islamic Finance
By Rushdi Siddiqui
Global Head, Islamic Finance & OIC Countries, Thomson Reuters

Unless Islamic finance is made relevant to young people, it will struggle to gain popularity and grow in strength in the future.

Read the full article here.

Grooming Gen Y for Islamic Finance - Tweeting Islamic Finance

Opalesque Islamic Finance Intelligence - Sixth Issue

Welcome to the sixth edition of Opalesque Islamic Finance Intelligence (download the pdf version), for this issue we aim to look further into various aspects of Islamic finance that might have been overlooked elsewhere. We begin with an editorial note that explores the linkage between the past and the present constituencies of Islamic finance (be that consumers, investors, or practitioners) or to put it in other words the generational change that is underway and the validity of applying a sustainability label to the industry.

This is promptly followed by our Featured Resource which highlights a survey of various training programs and certifications available in the marketplace, this is a far more detailed version of our earlier attempt (much credit goes to one of our readers). Similarly, the concept of brand identity (within the realm of Islamic finance) has been rarely discussed, hence we turn to the Industry Snapshot section where Joy Abdullah delves into the linkage between corporate culture and brand identity - as these relate to Islamic financial institutions.

Muqaddasah (call option using set-off) is dissected by Nikan in the Featured Structure section, a combination of murabaha and salam which might not be widely used in the market but presents a valuable illustration of how various instruments can be combined to create new permutations. Islamic Venture Capital has also been under-reported and our Allocator Interview profiles Jordan-based Ahmed Muhammed Almanasreh from Sanad Islamic Investments, who shares his views on Islamic VC in the MENA region.

Khalil once again provides food for thought in Lex Islamicus by discussing the debate over the commercialization of fatwas, whereas our Opinion Column hears from Furqan Ahmad who scrutinizes some of the core challenges being faced by the industry today. Always welcoming your comments & suggestions and a reminder that you can check the ever-growing Opalesque Islamic Finance Briefing and Opalesque Islamic Finance Intelligence, all available free in our Online Archive.

Download the complete issue of Opalesque Islamic Finance Intelligence here (registration required).

Alternatively you can read each section separately:

Editor's Note: Insufficient Funds
Featured Resource: Islamic Finance Training Programs & Certifications 2.0
Featured Structure: Call Option using Set-Off
Allocator Interview: Ahmed Muhammed Almanasreh, CEO, Sanad Islamic Investments
Lex Islamicus: Fatwa Incorporated
Opinion Column: The Future of Islamic Banking and Finance in the GCC and the World
Industry Snapshot: Importance of Corporate Culture in Brand Identity

Opalesque Islamic Finance Intelligence - Sixth Issue

Islamic Mutual Funds' Financial Performance and Investment Style

This particular study scrutinizes the performance of Islamic funds with much more comprehensive data of the existing universe of investment products and at the same time delving deeper into the implications of the data. While some of the conclusions would have been voiced within the industry, this study provides much more solid evidence to support/substantiate them.

Islamic Mutual Funds' Financial Performance and Investment Style: Evidence from 20 Countries
Andreas G. F. Hoepner (1), Hussain G. Rammal (2) & Michael Rezec (1)
(1) School of Management, University of St. Andrews, UK
(2) International Graduate School of Business, University of South Australia, Australia

September 2009

Abstract: "We contribute to the investment literature by pursuing the first sophisticated, large scale analysis of a strongly growing mutual fund type: Islamic funds. Despite hundreds of Islamic funds exist the few previous studies investigate the financial performance of less than 60 and the investment style of 6 funds. Based on unique data access, we analyse the financial performance and investment style of 262 Islamic equity funds from twenty countries. We develop a (conditional) three level Carhart model to simultaneously control for their exposure to different national, regional and global equity markets and investment styles. Our findings are fourfold. First, Islamic funds from eight (mainly western) nations significantly underperform their international equity market benchmarks, while funds from only three nations do the opposite. Second, Islamic funds generally prefer small stocks but have no preference for other investment styles. Third, Islamic funds from the Gulf Cooperation Council (GCC) or Malaysia neither significantly underperform nor clearly prefer small stocks. These three findings have some theoretical appeal, as Islamic funds’ investment universe is limited to Shari’ah law compliant companies, which are more likely small and present in economies with a higher density of Muslims. Fourth, we find some evidence that Islamic equity funds exhibit a hedging function, as their investment universe is limited to low debt/equity ratio stocks."

With thanks to Andreas Hoepner for providing the paper.

Islamic Mutual Funds' Financial Performance and Investment Style

Islamic Finance: What leaders do differently

This piece is far more concerned with branding and positioning of Islamic banks in the context of competing side by side with conventional institutions. Not surprisingly items such as product innovation and 'quick' Shariah approval process are prime considerations, among other things. The question remains - does the need to compete vis-a-vis conventional players makes IFIs drift away from their original business model, instruments, and practices??

Islamic Finance: What leaders do differently
Lessons learned from Islamic financial institutions in the GCC

Dr. Helmut Schulte-Croonenberg and Alexander von Pock

A. T. Kearney

Islamic Finance: What leaders do differently

Islamic Banks' Profitability in an Interest Rate Cycle

A couple of recent discussions in our Linkedin forum delved into the various risks faced by Islamic financial institutions and whether any of these would be specific and/or more concentrated due to the nature of their business model. Here is a short piece that - although outdated - provides a good starting point for exploring the issue further.

Islamic Banks' Profitability in an Interest Rate Cycle
Anouar Hassoune
International Journal of Islamic Financial Services (now IBF Review)
July - Sept 2002

Excerpts: "All in all, not only does Islamic banks’ profitability seem less volatile than that of conventional peers, but it is also higher on average, at least in the GCC region. These two elements are essential for assessing the soundness of Islamic banks’ financial profile and creditworthiness. Islamic banks thus seem less vulnerable to the cyclical nature of returns on assets and costs of liabilities."

"On the other hand, Islamic banks lose on the grounds of liquidity, assets and liabilities concentrations and operational efficiency what they tend to win in the field of profitability."

Islamic Banks' Profitability in an Interest Rate Cycle

The Development of Islamic Finance in the GCC

A recent piece surveying the development of Islamic finance in the GCC, examining the extent to which government policy (i.e. legislation and regulation), has facilitated the development of the industry in the region. Governance systems are also looked at, especially the preferred self-governance approach that has been developed by Islamic financial institutions in the region.

The development of Islamic finance in the GCC
The Kuwait Programme on Development, Governance and Globalisation

Rodney Wilson, Durham University

May 2009

The Development of Islamic Finance in the GCC

Opalesque Islamic Finance Intelligence

Opalesque launches Islamic Finance Intelligence as industry faces great debates in a number of fronts

Setting a new standard: 19 pages of intelligence.

Welcome to the first issue of Opalesque Islamic Finance Intelligence (OIFI), designed with a practitioner approach – focused on precise and relevant content for investors, product manufacturers, and fund managers of this truly global community. This free, monthly publication complements Opalesque Islamic Finance Briefing (our daily industry news briefing) and leverages on the success of the Opalesque family of specialized publications (Alternative Market Briefing, A Square, Roundtable Series, etc).

The industry faces great debates in a number of fronts – from market gaps, distribution networks, standardisation initiatives, risk & compliance concerns, to structural question marks. These issues are faced by both current industry players as well as new entrants. A case in point is the recent debate over Tawarruq, with Nikan scrutinizing the matter in our Featured Structure section.

The range of topics is vast - Islamic finance products now extend to all asset classes (from exchange traded funds to private equity vehicles), the industry is ever-evolving in its core markets (the GCC and Southeast Asia) and product cross-pollination with conventional fund houses is an emerging trend. Our maiden edition further provides an overview of Islamic contract law - detailed by Khalil in our Editorial Column. We also debate over the outputs of the transaction: practitioners share their thoughts in our Discussion Forum on the use of conventional benchmarks (i.e. LIBOR) by Islamic banks, whilst Toby Birch of Birch Assets Ltd scrutinizes the industry pitfalls in our Allocator Interview.

Market awareness has skyrocketed in recent years - experts once touted the existence of 60 Islamic equity funds whereas the industry now boasts a universe of well over 700 Shariah compliant investment products. Growth projections usually land between 15 to 20 percent per annum, yet some of the largest Muslim countries (i.e. Indonesia, Egypt and India) remain untapped. A comprehensive product range is unheard of (in stark contrast to the conventional world), yet this bestows the industry with endless prospects. Bernardo sheds light on these by analyzing Islamic fund of funds in our Industry Tables section.

Opalesque Islamic Finance Intelligence is a free subscription- new readers can register here and make your choice from our menue of eleven specialized publications. (Note that while most of our publications are free, we also offer three premium/paid publications).

Download the first Opalesque Islamic Finance Intelligence issue here!


(Sorry for the Marketing Spiel, but we wrote it and its free).

Comments, as always, are welcome! JAK!

Opalesque Islamic Finance Intelligence

Shariah Scholars and their Networks

This presentation from Funds @ Work gives a detailed network analysis of Shariah Scholars on GCC boards. This gives a little more colour to our earlier post on the employment of shariah-scholars by businessmen.

Similar analyses have been done for Boards of Directors and CEOs of Western firms (see e.g., the site http://theyrule.net/ or a post in this blog), showing intricate connections, many reciprocities, and a very small set of decision makers. All in all, the other analyses are not altogether flattering displays of factual information.

What can we say about Shariah Scholars? Small universe? Certainly not six degrees of separation!

Shariah Scholars and their Networks