Challenges in Islamic banking sector

By Habhajan Singh
The Islamic banking industry is facing challenges of higher cost of funding emanating from the credit crunch and slower global economic growth, says Kuwait Finance House (Malaysia) Bhd (KFH Malaysia) managing director Datuk K Salman Younis.
The Islamic banker said the Islamic banking and finance industry is poised to see a 'stronger growth', with demand for Shariah-based products expected to be higher as the financial turmoil has shown some drawbacks and weaknesses in conventional banking products.
"Islamic finance has proven to be a viable alternative to conventional banking, acting as a catalyst to enhance the financial linkages, not only within Asia, but also with the rest of the world," he said at the official opening on Wednesday of KFH Malaysia's branch in Kuching, Sarawak.
The branch, KFH Malaysia's seventh branch nationwide since beginning operations in Malaysia on Aug 8, 2005, was opened by Sarawak Chief Minister Tan Sri Abdul Taib Mahmud. Also present were the state's Minister of Housing Datuk Amar Abang Abdul Rahman Zohari Abang Haji Openg and Sarawak State Secretary Datuk Amar Wilson Baya Dandot. On its dealings in Sarawak, Salman said KFH Malaysia was involved in 'transaction of two significant deals' ealier: the RM35 million murabaha tawaruq for Zecon Bhd's working capital and a syndicated ijarah totalling RM305 million for Press Metal Sarawak to finance the construction of a smelting plant in Mukah.
At this juncture, the Kuwait-based Islamic financial institutions have a presence in Bahrain, Turkey and Saudi Arabia via its subsidiaries KFH Bahrain, KFH Awqaf and Saudi Kuwait Finance House, respectively.
The outfit conducts businesses in various sectors including health services which are provided by Al-Salam Hospital, technology through International Turnkey Systems Company and in aviation through ALAFCO Aircraft Financing and Acquisition. KFH also operates in domestic and foreign investments through AREF Investment Group and Liquidity Management House.
KFH has direct investments in areas like shipping, education, oil and gas including petrochemical, halal food, agriculture, automotive, construction and real estate development.
As the regional headquarters of KFH in the Asia-Pacific region, KFH Malaysia's main role is to provide innovative Shariahbased financial solutions to its customers. In addition, it acts as the intermediary and facilitator to promote two-way investments and trade between Malaysia, Asia-Pacific and the Middle East. It has also set-up a subsidiary, KFH Asset Management Sdn Bhd, to manage the group's fund management activities in the region.

(This story appeared in The Malaysian Reserve on Feb 27, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)