Islamic banking is showing regular and steady growth all over the globe and many studies by different institutions gave the conclusion that the rate of Islamic banking growth exceeds 25 per cent.
No doubt, this is a remarkable rate of growth that gives special message particularly to bankers and the banking industry.
Islamic banking has been practised and normally undertaken by licensed Islamic banks.
However, of late and in many places some conventional banks started the motion of practising and undertaking Islamic banking activities via what are known as “Islamic windows”.
Conventional banks, through such special “windows,” are rendering some Islamic banking services to their customers.
This noticeable tendency has been in rise since the last banking crisis and that lashed the conventional banking system.
At some time, there was some debate between many central banks whereby the Central Bank of Qatar decided to withdraw the licence and to disallow conventional banks from providing Islamic banking services by any means.
Qatar Central Bank instructed conventional banks to leave Islamic banking activities exclusivity for fully-fledged Islamic banks in Qatar.
Later on, certain central banks in Gulf countries, clearly announced a different approach stating that Islamic banking services could be undertaken and practised by fully-fledged licensed Islamic banks and, as well, by other conventional banks provided that they adhere to certain procedures laid by the relevant regulators including the central banks.
Likewise, many banking institutions in Gulf countries, particularly Islamic banks, expressed their concurrence and support to the views of the central banks allowing all types of banks to undertake Islamic banking activities.
This debate, no doubt, will keep raging and the dialogue will continue for long time with certain pros and cons in each stand depending on the merits of each case.
Conventional banks are working under certain long uninterrupted banking practices and will automatically label Islamic banking activities with such practices and cultures and it could defeat or harm Islamic banking concepts and principles.
The issue of survival comes here, a valid point to be taken in consideration.
Moreover, even though, conventional banks are undertaking Islamic banking activities through separate and independent “windows” or certain closed-channels, nevertheless, the staff working therein is obliged to follow the general policies and strategies of the parent company.
This could create some ambiguity and uncertainty in certain lines and the existence of such grey area could be guided by the dominating parent company.
Also, the issue of survival comes over here.
On the other hand, undertaking Islamic banking activities by non-Islamic banks could be beneficial to the Islamic banking industry and its spread in the global finance and economy.
This point could give an advantage since any person anywhere, irrespective of his religion or faith could opt to utilise any of the Islamic banking services.
Technically, conventional banks when undertaking Islamic banking should do so under “Islamic banking window” or at a certain “branch” and to fix certain staff with certain training to run the business as required by Sharia rules and scholars.
However, in addition to above points, it would be more appropriate for those interested conventional banks to take a more positive stand and incorporate an affiliated company or a special purpose vehicle to undertake Islamic banking activities, with normal full corporate independence.
This will be a great step as it will sever the Islamic banking assets and belongings from the parent company.
In other words full severance between the two entities to the extent of “no mixture of waters” as required by rules and prudent banking practice.
As we see, all banking activities, being from conventional or Islamic sources are needed for better economy and good services to the community.
Both are required and they have to compete on giving the best services to their customers and stakeholders.
The author is a Bahrain-based lawyer and professor of
business law