Islamic banks must adapt to attract people who also deal with conventional banks if the traditional sector is to grow further, the governor of the Bahrain Monetary Agency said Tuesday.
"Islamic banking and other Islamic financial institutions are rapidly approaching a crossroads," Sheikh Ahmed bin Mohammed al-Khalifa told the opening session of a conference on Islamic Banking and Finance in Manama.
"Islamic banks have grown primarily by providing services to a captive market, people who will only deal with a financial institution that strictly adheres to Islamic principles."
But this market was estimated, Bahrain's central bank chief said, to be only about 20 percent of the potential market for Islamic financial products, which are based on the premise of sharing profit and loss.
"If the Islamic sector is to continue to grow and to become a powerful force in international financial markets, it must also be able to attract the business of those persons who might prefer to use Islamic banks, but are also prepared to deal with conventional banks and other financial institutions.
"Islamic banking must do this without in any way compromising its Islamic principles," warned Sheikh Ahmed.
To meet the challenge, Islamic financial institutions had to meet the highest regulatory standards to convince customers they are secure; ensure the quality of human resources to compete with conventional institutions and offer products that, while Sharia-compliant, are competitive.
There are more than 265 Islamic financial institutions in the world with capitalisation in excess of 13 billion dollars and assets of over 262 billion dollars, according to the Union of Arab Banks.
Their financial investments exceed 400 billion dollars and deposits are in excess of 202 billion dollars.
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