Posts Tagged ‘Qatar Central Bank’

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Qatar warns of sharia finance risks

April 24, 2011

The Qatar Central Bank has banned sharia banking departments within conventional banks from operating in Qatar.  I overlooked this story when Shariah Finance Watch highlighted it in February (and apparently Creeping Sharia, to which my access is unfortunately blocked at the moment), and just came across it through an email message.  

There are several nuanced factors behind the QCB’s decision–an unfortunate one of which is the desire to protect purely sharia banks from the competition presented by conventional banks with Islamic services.  But in their announcement in February, the QBC also went out of its way to note the substantial risks posed by sharia investing, pointing especially to the sharia departments’ lack of capital adequacy.  QBC also called the Islamic financial concepts of mudarba, murabaha, mushareka, istisna and ijara “quite risky.”  Notably, the QBC observed that banks with mixed conventional and sharia operations are more difficult to audit because the two types are subject to different accounting standards.
 
Are we beginning to see the acknowledgment within Gulf circles that sharia finance isn’t all it’s cracked up to be, or are we seeing a budding argument for the wholesale replacement of convential banks by sharia banks in the Middle East to allow for a single accounting standard?  The political winds of the Arab Spring suggest that the likelier outcome is a deepening of Islamization of governments and economies.
 
From The Peninsula:

DOHA: Qatar Central Bank (QCB) yesterday justified its decision to close Islamic arms of conventional banks and said separate capital adequacy norms were on the anvil for Islamic banks.

The regulations being put in place will be based on the guidelines issued by Malaysia-based Islamic Financial Services Board (IFSB), the QCB was quoted as saying by the Qatar News Agency (QNA).

These guidelines are different from the ones that are applicable to commercial banks under Basel 2 and 3.

The IFSB is amending its capital adequacy rules. “It would, thus, be very difficult for commercial banks with mixed operations to simultaneously follow the two sets of separate directives,” the QCB said.

It specified several other reasons for its controversial decision, saying it is too difficult to supervise and monitor Islamic and conventional operations of commercial banks since they get ‘mixed up.’ It implied that ‘mixed’ operations could lead to problems in auditing, consequently providing scope for manipulation.

Islamic financing carried more risks than conventional financing, said the QCB, describing the major Islamic financing tools—Mudarba, Murabaha, Mushareka, Istisna and Ijara—as ‘quite risky’, the regulator said.

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