Page 251 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

Capable Capital: The GCC as a Source of Capital 233

secured their independence from colonial influence, and were keen
to develop financial institutions consistent with Islamic values.
A number of Gulf-based financial services conglomerates emerged
in the 1970s and expanded in the 1980s, developing new products
and business models to compete with their conventional (non-
Sharia-compliant) counterparts. In the 1990s, Islamic finance was
identified by major global banks as critical to success in certain
Muslim markets. Citibank and HSBC established global Islamic
finance units, after which nearly all major global banks followed
suit. Euromoney holds frequent seminars on the topic of Islamic
finance, the Harvard Law School has a research program based on
it, and the Dow Jones Indexes track Sharia-compliant securities in
various markets. According to a World Bank study, there are over
300 institutions offering Islamic financial services today. 26
The industry has, according to many observers, reached main-
stream relevance and acceptance.
While Islamic finance is a global phenomenon—HSBC, for
example, offers Islamic retail services in nine countries—the heart
of the market is the GCC countries and Malaysia. In Saudi Arabia,
according to central-bank data and observers’analysis, the volume
of Sharia-compliant banking assets is believed to have surpassed, as
of 2005, the volume of conventional assets. In the Gulf overall, 27
Islamic financial assets are believed to be 25 to 30 percent of all
banking assets, with the figure expected to reach around 40 percent
28
by 2010. As Sharia compliance has proven its viability, corporate
entities that otherwise may have been comfortable with conven-
tional finance are facing pressure from customers and shareholders
to eliminate noncompliant practices. A friend whose family owns
one of the largest listed companies in the UAE confided to me that
board members were increasingly pressuring his family to adopt a
fully Sharia-compliant corporate balance sheet. In response to mar-
ket demand for Sharia compliance—Islamic finance is growing
faster than conventional banking—a number of conventional banks
including the UAE’s National Bank of Sharjah and Saudi Arabia’s
Bank Al Jazira, have converted their operations to become fully
Sharia-compliant. Other major banks are launching separate brands
and product lines for Islamic finance.
The rise of Islamic finance has a number of important implica-
tions for multinationals seeking to build business ties with the GCC.