Islamic banking is showing a regular and steady growth in all corners, all over the globe. Many studies by different institutions gave the conclusion that the rate of Islamic banking growth reaches 25%, if not more.
Islamic banking has been practiced and undertaken by pure special Islamic banks and, also, in many places some conventional banks were practicing and undertaking Islamic banking activities via what is known as “Islamic windows”. Through such windows some conventional banks are rendering Islamic banking services to their customers. This noticeable tendency has been in rise since the last banking crisis and the water-tightness-probability of Islamic banking, during the crisis, that overwhelmed the conventional banking system going-on for decades.
Some time back, there was some debate between Central Banks in the Gulf region whereby the Central Bank of Qatar decided to withdraw the license and disallow conventional banks from providing Islamic banking services at all and by all means. Moreover, they instructed such banks to refrain completely from providing Islamic banking services and to leave such activities in exclusivity for fully fledged Islamic banks in Qatar. The news, and such new stand, spread very fast from Qatar over the GCC region.
At the same time, the Central Bank of Bahrain, CBB, very clearly announced a different approach stating that Islamic banking services could be undertaken and practiced by fully fledged Islamic banks in Bahrain and, as well, by other conventional banks provided that they adhere, follow and observe certain procedures laid by the Regulators including the Central Banks of Bahrain, CBB.
Many banking institutions in Bahrain, particularly Islamic banks, expressed their concurrence and support to the views of the Central Bank of Bahrain CBB. However, we have noticed that there are certain views in other countries in the region that go in line with the views of the Central Bank of Qatar.
This debate, no doubt, will continue for long time with certain pros and cons in each stand. It goes without saying that conventional banks are working under certain long uninterrupted baking practices and rooted cultures of conventional banking and they automatically label Islamic banking activities with such rooted practices and cultures and such attitude could defeat Islamic banking concepts and principles.
Moreover, even though, they are undertaking Islamic banking activities through a separate and independent “windows” or channels, nevertheless, the staff working therein is obliged to follow the general policies and strategies of the parent company. This could create some ambiguity and uncertainty in certain lines and the existence of such grey area could be influenced, guided / controlled by the dominating parent company.
Undertaking Islamic banking activities by non-Islamic banks could be beneficial to Islamic banking industry and its spread in the global finance and economy, this could give an advantage since any person irrespective of his religion or faith could opt to utilize any of the Islamic banking services.
Technically, conventional banks when undertaking Islamic banking they should do that under “Islamic banking window” or a certain “branch” with Chinese Wall to isolate their money and assets. Moreover, there is a need to fix certain staff with certain training to run the Islamic business. However, it would be more prudent and appropriate for conventional banks to incorporate an affiliated company or an SVP to undertake Islamic banking, with the normal full corporate independence.
Irrespective of the mixture and the non-mixture between Islamic and conventional banking, the repercussions and outcome of the decision of Qatar Central Bank, is not known yet. It’s an experience that we need to see its outcome so as to judge how to proceed in the future for a better banking industry…
Dr . AbdelGadir Warsama Ghalib
Founder & Principal Legal Counsel
Dr.AbdelGadir Warsama Consultancy
E-mail : awarsama@warsamalc.com
