Qatar - More clarity unveiled: Comments by Muath Mubarak

Still reeling from the news of Qatar Central Bank’s (QCB) directive to shut down Islamic banking windows in the country by year end, bankers are both optimistic and pessimistic about the exercise. QCB’s shocking decision is to separate Islamic banking windows from conventional banks without issuing additional banking licences. This translates into conventional banks with Islamic windows being forced to wind up their Shariah compliant business without the option of establishing an Islamic banking subsidiary.

Practitioners, while grappling with the gravity and reasoning behind the abrupt decision, have hailed it generally as encouraging. Muath Mubarak, Qatar based banking practitioner considered it as a positive move for the Islamic banking industry as it will have clear demarcations between conventional and Islamic banks and brings more transparency and improved governance. The comingling of funds between conventional and Islamic has been cited as the major reason behind this decision. Referring to QCB’s motivation to maintain focused business growth, be it Islamic or conventional, Muath highlighted that the steady growth and increasing demand for Islamic banking products along with the push for standardization and governance of banking practices may have played their part in the decision.

The comingling of funds has also raised concerns among practitioners, as Muath explained that this could give rise to the exploitation of large combined balance sheets by conventional fi nanciers to go for bigger Islamic transactions. He further added that this also creates monitoring and supervisory issues on both the banker’s and regulator’s side. On the conventional banker’s side, Salah Jassim Murad, CEO of Ahli Bank, said that QCB’s decision will reduce the number of players in an already saturated market. The gain of Islamic banks will be at the expense of the loss of revenue streams from the Islamic windows of conventional banks. Salah

said as a regulator, QCB has no obligation to compensate for loss of revenue, if any. The conventional banks will have to adapt quickly to make up for any losses.

In terms of existing long-term Islamic fi nancing contracts, Salah commented that the decision gives banks the option whether to run with the term fi nancing until their maturities or sell. He said that the affected banks are currently examining all options including partial conversion of existing contracts into conventional terms. Also on the asset side, he added that the banks can transfer their Shariah compliant investments to the conventional book. While the affected banks still mull over the details and course of action for the disposal of Shariah compliant business arms, Muath said in the long run, this decision is expected to leave a positive mark on Islamic finance in the region

This was published by Red Money in IFN on 16-Feb-2011