Growing Islamic banking and finance in Qatar

By Sachin Kumar | The Peninsula

Several countries are attempting to become leading regional and global Islamic finance hubs as Islamic finance is considered to be one of the fastest growing sectors.

Qatar is rapidly developing its Islamic finance industry and is poised to become a leading hub for the sector Within the Islamic finance, the Islamic banking sector is playing an important role in making Qatar a leading interconnected Islamic finance hub.

“The Islamic banks are taking all measures to attract customers and increase their market share. Showing agility and flexibility, they have launched many customer-centric products and services. They are also swift in adopting new technology which not only saves time of customers but also reduce operation cost,” a senior official of an Islamic bank told The Peninsula.

Qatari Islamic banks have launched their own digital solutions, which is helping Qatar in its quest to become an Islamic fintech hub. Qatar Islamic Bank, for example, has launched a digital on-boarding service for prospective clients, who can now easily open accounts through the bank’s app without having to visit the physical bank. The app also allows clients to raise preapproved finance. Barwa Bank is also targeting full digital transformation, introducing its own digital application and plans to launch a point-of-sale (PoS) product.

There are 13 conventional banks and four full-fledged Islamic Banks. A merger was announced in 2018 between two Qatari banks- Barwa Bank and the conventional International Bank of Qatar (IBQ).

The operational consolidation of the two banks was finalised in April 2019, operating under the name Barwa Bank, making it the third largest bank in Qatar. With combined total assets of $22bn, it is intended to boost operational scale and combine the banks’ strengths in terms of retail, corporate and private banking services, along with wealth and asset management.

The launch of a fifth Islamic bank- Energy Bank- was announced in 2019, which is set to become the largest energy-focused Islamic lender in the world, with a targeted capital of $10bn. Energy Bank will finance private and government energy related. It will capitalise on Qatar’s powerful presence in the global energy market, particularly with regards to liquefied natural gas.

Total commercial banking assets in Qatar amounted to $400bn by the end of first half of 2019, according to a report released by Qatar Financial Centre (QFC). Islamic banking accounts for 82 percent in the Islamic finance industry in Qatar in terms of assets, with a total value of $107bn in the first half of 2019.

“Islamic banking assets saw a significant rebound in the first half of 2019, with double-digit growth of 11.4 percent since 2018, compared with a marginal decline of 0.2 percent in conventional banking assets,” noted the report.

Domestic credit was the biggest constituent of total assets for both Islamic and conventional commercial banking, which respectively contributed 64 percent and 60 percent of total assets for the first half of 2019.

Not only domestic customers, even foreign customers’ trust on Qatar’s Islamic bank is rising and they are expanding their footprints in other countries. Foreign customers’ confidence in Qatar’s banking system had been restored after major rating agencies upgraded their outlook for the banking sector from negative to stable. As a result, non-resident deposits for Qatari banks, through their international branches and subsidiaries, have seen continued recovery growing by 17.3 percent during the first half of 2019.

Islamic banks in Qatar have been actively expanding their international networks, tapping into nascent Islamic finance markets such as the UK and Morocco and capitalising on their existing wealth of expertise and cost efficiencies.

“Qatar’s Islamic banking sector stands to gain a competitive advantage in the region and attract more international business through the adoption of a more progressive approach centered around sustainability,” noted the report.

To support this growing sector, the country has Islamic finance education institutions. Qatar has eight institutions providing Islamic finance education. These institutions offer courses, degrees and other qualifications covering Islamic finance-related themes such as Islamic banking and Islamic jurisprudence.

Universities and affiliated bodies in Qatar published 30 research papers on Islamic finance between 2016 and 2018, on topics including sukuk, Islamic banking, Islamic accounting, and Islamic legal issues.

Experts say that increasing awareness in the society will further boost this sector. Greater consumer awareness would spur improvements in Islamic finance services.

For consumers, greater awareness and understanding of Islamic financial services would help increase the adoption of Islamic financial products, and the expectations that awareness raises would force the industry to offer better products and services.

Awareness is measured in terms of news reports and events concerning Islamic finance. Qatar’s Islamic finance industry was covered in 1,266 news publications during 2018. In addition, Qatar hosted six Islamic finance-related events including roundtables, symposiums and seminars.

For the Islamic finance industry to maintain its current rapid growth it is essential that there is greater awareness of its benefits among the public and that professionals are equipped with the specialist knowledge required for its development. Experience in the conventional finance industry alone is not enough as Islamic finance professionals also need to be knowledgeable in the Shariah law governing financial concepts and products.

Islamic finance sector is also getting support regulatory support. Qatar Central Bank (QCB) has taken step in enhancing Islamic banking regulations, by announcing the formation of a centralized Shariah supervisory body in line with global best practice. A centralized Shariah body will create a more consistent Shariah governance framework that aligns Shariah compliance across the industry, thus reducing the Shariah risk of the Islamic banks’ products and services.

More recently, however, Takaful has fared better in the Qatari market and has outperformed conventional insurance assets growth over the past two years, growing 6 percent during the first half of 2019, compared with the conventional insurance sector’s growth of 3 percent.

Other components of Islamic finance sector, asset management and takaful sector have also registered strong growth.

The conventional insurance and takaful sectors’ growth shows their resilience in the face of challenging global and regional economic conditions. The growth is being driven by non-life insurance and business stemming from infrastructure projects being built as part of Qatar’s National Vision 2030 and preparations for the 2022 FIFA World Cup.

The Islamic asset management sector in Qatar doubled over the past five years in terms of AuM (Asset under Management), which reached $399m in the first half of 2019, more than half of total AuM.

This shows how successfully the Islamic finance industry has already captured opportunities in Qatar’s fund and wealth management sectors.

Another incentive that has boosted the Islamic asset management sector in Qatar is the increase of the foreign ownership limit on Qatari-listed companies to 49 percent from 25 percent. This has attracted significant foreign investment flows that helped boost the main QSE index by more than 20 percent last year, encouraging greater foreign investment in Shariah compliant stocks, particularly financial and energy companies.

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