:00:00. > :00:07.protection tax. More on those stories are the top of
:00:08. > :00:11.the hour. Right now on BBC News, Talking Business with Linda Yueh.
:00:12. > :00:17.Islamic finance has grown rapidly. But it is still a very small segment
:00:18. > :00:21.of global banking. Is that set to change? Here in Singapore, I am
:00:22. > :00:41.Linda Yueh and we are talking business.
:00:42. > :00:48.A warm welcome to the programme. Islamic finance is ankle ending on
:00:49. > :00:55.the basis of sharia law so earning interest is forbidden. Instead, the
:00:56. > :01:00.customer and the bank defied the risk of any investment and then
:01:01. > :01:05.share the profit. Our Middle East business correspondent went to find
:01:06. > :01:12.out why it is growing so quickly. Customers at emotional Islamic banks
:01:13. > :01:16.have been offered sharia compliant products for 40 years. A dozen new
:01:17. > :01:20.products have been introduced over the past four years with as many
:01:21. > :01:27.expected this year alone including a pension plan. We have developed a
:01:28. > :01:37.pioneering sharia compliant savings and return product, using the
:01:38. > :01:44.partnerships and a fund manager with the underlying funds are invested in
:01:45. > :01:49.sharia compliant structures. Opening up the market so that the investors
:01:50. > :01:54.that insist on using sharia compliant products can do more with
:01:55. > :01:58.their money and taking on the conventional banks, they have for a
:01:59. > :02:04.long time offered their customers a wide variety of financial products
:02:05. > :02:09.and services. We are not Muslims so it doesn't mean that it is of
:02:10. > :02:14.critical importance to have Islamic banking. It is more about the good
:02:15. > :02:20.financial services than anything else. Now, multinational banks
:02:21. > :02:24.appeared equally keen to expand their offerings in the Islamic
:02:25. > :02:33.market as well. We have a very comprehensive suite of management
:02:34. > :02:39.products for managing interest rate risks, but you risks, any risk that
:02:40. > :02:46.the businessmen face in the real economy today. The Islamic finance
:02:47. > :02:49.industry has also received a boost from financial regulators worldwide.
:02:50. > :02:58.They have removed some of the extra cost. A religious order recently
:02:59. > :03:04.granted access. We are able to offer clients a daily deal in a liquid
:03:05. > :03:11.fixed income, opportunities or options to complement their equity
:03:12. > :03:21.and real estate portfolios. The idea is that now, they are much more able
:03:22. > :03:25.to have a diversified portfolio. According to a recent survey,
:03:26. > :03:29.customers who use Islamic banking are happy with the transparency of
:03:30. > :03:32.their services but criticised the lack of simplicity and lower
:03:33. > :03:37.standard of banking and despite the recent innovations, with 60% fewer
:03:38. > :03:47.products on offer in Islamic banks compared to traditional banks, the
:03:48. > :03:54.sector still has a long way to go. I caught up with Adnan Yousif,
:03:55. > :03:58.president and chief executive of Al Baraka Banking Group, one of the
:03:59. > :04:02.largest Saudi conglomerates in the least, to find out what the
:04:03. > :04:07.potential for growth is. Islamic banking has been in operation for
:04:08. > :04:13.the 40 years. Although they grow very fast in these 40 years, still,
:04:14. > :04:19.they have a long, long time to grow and to expand. We cannot compared
:04:20. > :04:26.ourselves to that additional banks, they have been in existence bank ``
:04:27. > :04:42.the traditional acts, they have been in existence for 300 years. What has
:04:43. > :04:45.caused the rapid growth? There has been really fast expansion of the
:04:46. > :04:51.sector over the past few years. First of all, the previous years,
:04:52. > :04:56.they used to be small and then suddenly they started growing.
:04:57. > :05:03.Countries which are operating, they show a very good growth, especially
:05:04. > :05:07.in the Middle East. This has pushed Islamic banking ahead. Still they
:05:08. > :05:12.continue with their 15% growth. I don't anticipate that this ratio
:05:13. > :05:17.will be increased or will stay. It might go between ten and 12% in the
:05:18. > :05:24.coming three or four years. That is still very fast growth. That means
:05:25. > :05:27.the sector will double in size in seven years. Is the growth
:05:28. > :05:34.predominately because in the Middle East or is it other outside markets
:05:35. > :05:40.where you are beginning to see the kind of real drivers? It is outside
:05:41. > :05:44.the Middle East. We have Indonesia, Malaysia, Singapore, they are
:05:45. > :05:53.opening their doors for Islamic banking. We have now China, India,
:05:54. > :05:55.all these countries are growing and also their banking activities are
:05:56. > :06:01.growing, whether Islamic or non`Islamic. Is it also because in
:06:02. > :06:05.the West, there has been a massive banking crisis? So, there is perhaps
:06:06. > :06:11.a turning away from some Western banks? No, that is not the reason
:06:12. > :06:15.for the growth of Islamic banking. Islamic banking has not been hit
:06:16. > :06:19.with a crisis because we avoid going through a lot of things which have
:06:20. > :06:26.been followed by the additional banks, one of them was their
:06:27. > :06:33.attempts. `` the traditional banks, one of them was derivatives. You are
:06:34. > :06:39.more limited in what you can do because you have to be complied with
:06:40. > :06:43.Sharia law. Normally, most of the banking, they grow whether their
:06:44. > :06:48.countries are growing. We anticipate that the growth will be there and as
:06:49. > :06:53.I say that, we cannot grow very fast. One of the big mistakes
:06:54. > :06:57.sometimes that banks do is they grow very fast, they don't learn from
:06:58. > :07:03.their mistakes and then they repeat the same mistakes. We don't want to
:07:04. > :07:08.do that. It sounds to me like it is a more conservative banking model,
:07:09. > :07:14.the kind of careful expansion, if that is the case, do you not pay
:07:15. > :07:21.huge bonuses either? We don't huge `` we don't page to check bonuses
:07:22. > :07:29.and they don't pay me huge bonuses. `` we don't pay huge bonuses. We
:07:30. > :07:34.don't want to repeat the same mistakes. The big institutions were
:07:35. > :07:38.offering their senior staff big bonuses without looking to the risk
:07:39. > :07:43.associated with the growth of their balance sheet or Bob growth of their
:07:44. > :07:54.profits. `` all the growth of their profits. `` all the growth. What is
:07:55. > :08:00.a reasonable amount? A reasonable amount is reasonable to your other
:08:01. > :08:06.sheet, and reasonable to the standard in your country. Maybe 1
:08:07. > :08:10.million in Singapore is reasonable but if you take it to America it is
:08:11. > :08:16.not reasonable because the market there is it, the growth is big, the
:08:17. > :08:22.balance sheet is it, therefore, you have also to see which market you
:08:23. > :08:24.are operating in. One of the things people find interesting about
:08:25. > :08:31.Islamic banks is it appeals to non`Muslims as well. Why do you
:08:32. > :08:38.think that might be the case? Well, I think that Islamic banking, from
:08:39. > :08:43.us, from Al Baraka Banking Group, we have a few institutions, we have
:08:44. > :08:49.Christians dealing with us more than the Muslims. I remember that one of
:08:50. > :08:58.our subsidiaries, the new shareholders who came and
:08:59. > :09:03.participated were Christians. It is not just for Muslims, it is for
:09:04. > :09:07.everybody. Everybody who believes in that kind of business, he is
:09:08. > :09:13.welcome, whether he is Muslim or question or otherwise. You are part
:09:14. > :09:23.of a big, red, within the business structure, how important is banking
:09:24. > :09:28.relative to the other sectors? It is a big sector. We are trying to grow
:09:29. > :09:33.not that fast, but we are growing very fast to enable us to the new
:09:34. > :09:39.business for the whole group. Some people look at banking and think
:09:40. > :09:42.this is really where you want to put your business with all the
:09:43. > :09:49.regulation and issues that come up? But for your group, is this the main
:09:50. > :09:52.thrust of you? I think you are right but we have to work in that
:09:53. > :09:57.environment. You cannot be completely isolated. We have to work
:09:58. > :10:01.within the regulation, within the environment in every country, in
:10:02. > :10:05.every kind of area in which we are working, we have to respect also the
:10:06. > :10:14.regulations. Globally, the Gulf region accounts
:10:15. > :10:18.for the bulk of the industry. Non`Muslim countries are also aiming
:10:19. > :10:23.to get a piece of this fast`growing market with untapped potential. For
:10:24. > :10:27.instance, 80% of Islamic finance assets are in the least which makes
:10:28. > :10:35.up just 6% of the Muslim population. I caught up with the CEO of another
:10:36. > :10:39.group, an international standards setting body based in Bahrain to
:10:40. > :10:46.find out how global the industry could become.
:10:47. > :11:03.We have taken an active role. We were the first ones established. We
:11:04. > :11:10.have Qatar and we now recently have one in Omagh. These countries have
:11:11. > :11:18.been active. And other countries in North Africa, they are at the
:11:19. > :11:23.developing phase. It will take time but then you have to news here which
:11:24. > :11:32.is looking at it, Morocco which is looking at it. And other countries,
:11:33. > :11:35.so these are evolved. If you want to offered complicated financial
:11:36. > :11:47.products which essentially sell a tragic returns, is that something
:11:48. > :11:54.which is developing? There are certain good products. It is not all
:11:55. > :12:00.speculative in nature. And derivatives are speculative in
:12:01. > :12:18.nature. We have developed standard documentation. We call it hedges in
:12:19. > :12:27.this segment. The main thing is that... Why are you going to have
:12:28. > :12:33.this product? One of the places where is Islamic finance is
:12:34. > :12:36.expanding is Africa. There is a significant Muslim population but
:12:37. > :12:46.Islamic banking is strong in both Muslims and non`slims. ``
:12:47. > :12:53.non`Muslims. For centuries, Zanzibar island has been home to a large
:12:54. > :12:58.Muslim community and today, almost 9090% of the inhabitants at here
:12:59. > :13:07.strongly to Islam. Among its teaching, the Koran, which prohibits
:13:08. > :13:15.borrowing money that comes with interest. As a result, the majority
:13:16. > :13:20.of Muslims shun financial services. Now several conventional banks have
:13:21. > :13:27.opened doors for Islamic banking. It is all part of the effort to meet
:13:28. > :13:31.the needs of this market. According to experts, Islamic banking adhere
:13:32. > :13:35.strictly to sharia law so the customer and bank must share the
:13:36. > :13:43.risk and, like other conventional banks where customers bear the full
:13:44. > :13:47.risks, throw in interest payments. The services offered for use real
:13:48. > :13:54.assets such as buildings as collateral were as conventional
:13:55. > :13:59.banks use real and virtual assets. Two things may become to this
:14:00. > :14:02.service: My faith, because I am working with the system free of
:14:03. > :14:08.worries about doing things contrary to God's instructions, and secondly,
:14:09. > :14:17.a benefit from business transactions because I pay fewer. Almost a decade
:14:18. > :14:22.ago, some of these banks had a terrible start but now, some have
:14:23. > :14:33.more than 36,000 customers with estimated assets of over $3 million.
:14:34. > :14:39.Islamic banks do not require their clients to be Muslims. We are
:14:40. > :14:45.targeting everyone. We do not target Muslims only. The instance, we have
:14:46. > :14:51.several non`Muslim climates. And it is not here only. Even in countries
:14:52. > :14:59.like Malaysia, statistics showed 60% of customers are non`Muslim. Even
:15:00. > :15:01.here, regular banks are providing Islamic financial products to
:15:02. > :15:08.attract both Muslims and non`Muslims. As of now, already six
:15:09. > :15:12.banks offer these services making competition even stiffer. Now that
:15:13. > :15:17.more banks offer products that comply with Islam, it is also
:15:18. > :15:21.widening the opportunities for people to access financial services
:15:22. > :15:29.and, in time, that helps boost financial inclusion in the country.
:15:30. > :15:39.What are the challenges for banks? Is there a restricted set of
:15:40. > :15:46.mortgages or pension? To find out the challenges for commercial banks,
:15:47. > :15:51.I sat down with the chief executive of a bank based in Malaysia and the
:15:52. > :15:55.chief executive of the Islamic bank of Asia. If I were a customer coming
:15:56. > :16:02.to your bank, what financial products would you have on offer?
:16:03. > :16:09.Our bank is universal. We offer consumer banking products. So
:16:10. > :16:14.basically, anything you would get if you work `` walked into a bank
:16:15. > :16:23.except the products are complied with sharia law? What about you? Our
:16:24. > :16:26.model is different. We are a merchant bank based in Singapore
:16:27. > :16:29.with strong connectivity with the Middle East so we're trying to
:16:30. > :16:37.differentiate around the middle east. Our product and services are a
:16:38. > :16:43.direct investment providing equity and we work with companies around
:16:44. > :16:50.our adviser services, capital markets advisory and be also work
:16:51. > :16:56.with wealth management providers as well. If I own the business and I
:16:57. > :17:07.came to your bank, why would I choose your bank, where you are
:17:08. > :17:14.offering a partnership versus the next bank down the road? We position
:17:15. > :17:20.ourselves as a good partner. We have a good mix of the conventional
:17:21. > :17:23.Islamic skill sets within the bank based in Singapore. We don't win
:17:24. > :17:31.this business purely by being Islamic. A company of them will
:17:32. > :17:39.choose us because we bring in something a little bit different. We
:17:40. > :17:43.are a medium term partner that is not only investing, providing
:17:44. > :17:48.capital in helping the company grow but also helping them grow their
:17:49. > :17:51.business in the Middle East or bringing investment banking skill
:17:52. > :18:07.sets to their business. Same question to you. Would I get the
:18:08. > :18:13.same variety than, say, if I went to a bank next door? We do business
:18:14. > :18:19.across 20 different jurisdictions. When customers come to us, they
:18:20. > :18:26.simply look for value, value for money. When they come to our bank,
:18:27. > :18:30.they get the same kind of products that carries the same value that
:18:31. > :18:35.they would any conventional bank, anywhere in the world. The most
:18:36. > :18:40.important thing, at the end of the day, is the difference of delivery
:18:41. > :18:44.of this product. When you