Basel III doesn’t work for Islamic banking’

Independent and robust business models are the need of the hour for the Islamic financial sector and the proposed Basel III norms have widened the faults between the conventional and Islamic banking, according to Eversheds conference.

Moreover, Islamic banks’ balance sheet size is limited and there are limited interactions between Shariah-principled lenders and their conventional counterparts while engaging in syndications, Abdulkader Thomas, an adviser with Shape Financial, told the 7th Banking and Islamic Finance Forum, organised by Eversheds.

Eversheds is an international law firm registered with the Qatar Financial Centre.

“The Basel III framework does not work for Islamic banking,” he said, adding austerity measures in the Western world would impact upon hydrocarbon prices and would have a knock on effect on the Islamic finance sector.

Aasim Qureshi of QNB Capital provided an overview of Qatari economy and the likely trends that would emerge in the future.

Expecting Qatar’s economy to register a 26% growth to $158bn this year, he said Qatar has outlined more than $200bn worth of projects, of which more than $88bn is directly associated with the 2022 FIFA World Cup.

Of the $88bn projects, Metro Railway share is $25bn, followed by road and bridges ($20bn), hotels and tourism infrastructure ($17bn), New Doha International Airport ($13bn), New Doha Seaport ($5bn), stadiums and training ($5bn) and electricity and water ($3bn).

Jaime Oon, solicitor at Eversheds, examined the implications of the Qatar Central Bank (QCB) circular on prohibiting conventional banks from undertaking new Islamic financing and deposits.

She said the market expectations are that the deadline (for the closure of Islamic windows) might be extended (from December 31, 2011) since there are many areas that lack clarity.

Amjad Hussain, partner and head of Islamic finance at Eversheds, held that the QCB’s circular had created opportunities for Islamic banks both in the short term (through potential customer acquisition) and in the longer term (by reducing competition).

“With the World Cup 2022 spending expected to start, Islamic banks in Qatar are likely to remain busy for the coming years. This will provide them with an opportunity to take the leadership role in the development of Islamic finance industry,” he said.