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Stability key for Lebanon Islamic finance growth
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BEIRUT: The biggest challenge to Islamic finance growth in Lebanon is political stability, said a Global Islamic Finance Leader Friday.

“Political instability has a negative impact on the growth of Islamic finance and it certainly doesn’t help the situation because no one would wants to invest money in a risky environment,” said Deloitte Global Islamic Finance leader Daud Vicary Abdullah in an exclusive interview with The Daily Star.

Abdullah believes that the banking sector should not react or get involved in any political disputes.

“But in all cases, if Lebanon is on an acquisition or investor’s list it is going to go down until the uncertainty is removed,” he said on the sidelines of a conference organized by Deloitte at its headquarters in Beirut.

The conference aimed at discussing the challenges facing Islamic finance in the world and the potential for its growth during the few coming years.

Islamic banking is one of the world’s fastest growing financial sectors, according to industry estimates. It has attracted more attention in the aftermath of the global financial crisis as investors are increasingly looking for alternative, ethical ways of investing. This has also intensified a debate within the industry on whether it should move further away from conventional banking, designing products based more directly on Islamic principles.

“I think the global financial crisis showed Islamic finance up in a very good light. In other words, the banking sector in the world was impacted but Islamic finance came out of that in a very good way,” Abdullah said. He added that the industry was able to succeed due to the fact that it does not deal with uncertainty and unusual derivative instruments as opposed to the conventional banking system which bases its operations on dealing with derivatives.

“In Islamic finance, we have real assets and people started to get the message that what we do is for the benefit of the community,” he said.

Abdullah added that although the industry fared well compared to the conventional banking system following the global financial crisis, the value of its assets has gone down.

“However, in some parts of the world, such as in Malaysia, it was not very much affected,” he said.

Asked about the potential of Islamic finance growth in Lebanon, Abdullah said the country is capable of attracting a lot of investments in this field but that it first needed to be able to secure stability and create a solid infrastructure for the establishment of additional Islamic institutions.

“The resignation of 11 ministers from the Cabinet of Prime Minister Saad Hariri distracted everybody,” he said. However, he said that Lebanon was a resilient place and expressed his optimism that things would come around in Islamic finance.

“However, I am not expecting a rapid change in weeks or months. I think this is going to take a period of time,” he said.

Abdullah cited Lebanon’s main strengths, saying that it is a cross road between the East and the West with language capabilities where, in other words, Arabic, English and French are widely spoken. “Lebanese are also very well educated and they are known to have a very good experience in the banking sector,” he added.

According to statistics previously provided by Central Bank officials, Islamic banks assets represent less than 1 percent ($251 million) of the total assets of Lebanese conventional banks.

Moreover, a report issued recently by consultancy firm AT Kearney said assets and deposits of Islamic banks would rise to $1 trillion in 2012, propelled by average annual growth rates between 15 percent and 20 percent.

There are an estimated 450 Islamic banks worldwide. Their asset base has increased to over $700 billion. Forty percent of Islamic banks are based in Arab countries, and the Gulf countries serve as a major center.

“We have four Islamic banks in Lebanon, two of which are Lebanese and the other two are Arab. Moreover, the Central Bank has recently issued a license for a fifth Islamic bank but it hasn’t started operations yet,” the Central Bank’s first vice governor, Raed Charafeddine, previously noted in an event organized to discuss the same topic as well.

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