03 October 2002

Conference Discusses Prospects For Islamic Banking In The U.S 
("Conditions are ripe for growth in the United States," says speaker) 

 By Ghada Elnajjar Washington File Staff Writer

Washington -- Islamic financial institutions are expanding in the United States to meet the needs of a growing American Muslim population.

Members of the U.S. Congress, U.S. government officials, ambassadors to the United States representing Muslim and Arab countries, and executives from Islamic banks, financial services companies and investment institutions and scholars examined the key issues in this rapidly expanding market sector at The International Islamic Finance Conference in Washington September 26.

The conference was organized by the Washington-based Islamic Free Market Institute (Islamic Institute) and the Bahrain-based General Council for Islamic Banks and Financial Institutions (GCIBFI).

"The Islamic banking investment and financial management market is growing at a rate of 15 percent per year, currently operates in 75 countries and accounts for around US$200 billion," said a statement prepared by GCIBFI. According to the statement, "nearly one quarter of all Islamic financial institutions are working in countries that do not have Muslim majorities."

Islamic banking and finance, a modern movement that began in the 1960s, embraces Islamic ethical principles (Shari'ah), which prohibit paying or charging interest, and prevent investment in unethical sectors and industries that produce pornography, alcoholic beverages, gambling and other morally questionable practices.

Financing businesses projects according to Shari'ah is based on installment sale, leasing and/or equity participation. This allows the Islamic banks and their depositors to share their financial risk with the entrepreneurs and together reap the benefits of investment. The practice of profit sharing essentially means that wealth creation should be the result of a partnership between investors and entrepreneurs in which the risks and rewards are shared. (www.IslamicBankingOnline.com).

Speaking on prospects and trends for the Islamic banking sector within the U.S. market, Rushdi Sidiqi, managing director at Dow Jones Islamic Market Index Group, said, "the conditions are ripe for growth in the United States." Sidiqi pointed out in that in addition to the financial managers and Islamic indexes, there is also "a population aware and interested in Shari'ah-based banking in the United States."

According to Abdulkader Thomas, a principal consultant at Strategic Guidance, LLC, there is a definite "Western demand for an Eastern product" -- Islamic banking.

"Thirty percent of the seven million American Muslims (who account for two percent of the U.S. population) want to adhere to strict Islamic principles when dealing with their finances," Thomas said. "Two percent of the U.S. population is not a small number, and thirty percent of that is not an undesirable market."

He said that demand for Islamic-based finance products is in the areas of home ownership, saving plans, retirement, loans for schools and special events. "Islamic banking in the United States is a middle class phenomenon, not a political statement," he concluded.

Atif Abdulmalik, CEO of Bahrain-based First Islamic Investment Bank, said that First Islamic has a subsidiary in Atlanta, Georgia, that offers market-leading products that conform to Shari'ah principles for those interested in investing in the United States. The bank's line of business includes direct investment, real estate, and asset management.

"Although the events of September 11 distanced the relationship between the United States and the Muslim world, the investors in the region still find U.S. investment market hospitable," said Abdulmalik.

Michael McMillen, a partner in the New York law office of King & Spalding, spoke about his firm's involvement in Islamic financing. McMillen's career has been focused on international and domestic project finances, leasing, structured finance and investment funds using Shari'ah based principles. He developed the first Shari'ah compliant construction and lease contract for the U.S. real estate market. In addition to product development for Muslim investors, King & Spalding is involved in project financing for an international oil company investing in the petrochemical industry in the Middle East.

"These projects," said McMillen, "are compliant with market practices in the Western and Muslim world. Structures are being developed in the United States that are Shari'ah compliant."

HSBC Holdings, one of the largest banking and financial services organizations in the world, also offers Islamic banking and finances. According to Tariq Al-Rifai, vice president of HSBC New York, "HSBC serves a lot of Muslim countries and has demographics in the United States."

Speculating on the reason why many banks do not operate Islamic services in the United States, Al-Rifai said, "many banks have a limited experience in marketing to multicultural communities and have no experience in dealing with the Muslim community." He said that the Muslim American community is a difficult market to capture geographically because it is spread out, difficult to quantify in terms of market potential, and difficult to assess because of lack of market history. "So institutions shy away," he said.

He told the audience that the American Muslim market is an "attractive market with untapped potential because there is high demand for the product, there are no dominant players in the market, and regulators are interested in learning about it."

(The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)