Islamic banks profit from credit crunch
The financial turmoil has made few winners and many losers; but some of the winners are institutions which provide Islamic banking, as demand for Shariah-compliant finance is expected to surge over the next few months.
As wary investors seek a more conservative approach to banking, and increasingly favour institutions without exposure to risky credit, so Islamic finance will grow in popularity, according to a senior accountant.
Also Islamic banks still have plenty of capital available to finance wealthy individuals and corporates, unlike their western banking counterparts, who will only continue to constrict their lending policies in light of the current economic crisis.
Dan Taylor, head of banking at UK accountant BDO Stoy Hayward, says: “As the risk profile of Islamic banks is generally lower than conventional western banks, this presents a more solid option for both retail and institutional investors and suggests that dealings with Islamic financial institutions will grow dramatically as people switch to more secure products in this environment.”
He added: “Further growth of Islamic banking in the UK will also be attributed to their more conservative approach to financing, as the risks are shared with the investor, much like the private equity model. In addition, it is more difficult for Islamic financial institutions to use leverage; therefore their risk profile is naturally lower."
Currently 20 major global banks operating in the UK have set up units to provide Islamic Financial Services. There are five stand-alone Islamic banks in the UK. In comparison, Switzerland has five Islamic financial institutions and France and Luxembourg each have four.
He said that in light of the market turmoil, he expects the number of stand alone Islamic financial institutions present in the UK to double over the next three years.
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