Citibank has formally launched an Islamic banking subsidiary in the Gulf. Citi Islamic Investment Bank (CIIB), which has capital of $20 million, is based in Bahrain. It is the first stand-alone Islamic bank set up by a Western conventional institution.

Citibank says the new bank, which it owns, will incorporate its existing Sharia-compliant business in a variety of fields including trade finance, equity investment and asset management, as well as private banking services. It will also offer facilities to provide short-term liquidity - a perennial issue for Islamic commercial banks, which cannot meet sudden calls on deposits by borrowing at interest on the conventional interbank market.

CIIB's managing director Shafqat Memon says the bank will concentrate at first on developing business in the Gulf, though its focus will be global. It will operate initially from Bahrain and intends to open branches in the future in Abu Dhabi and Malaysia.

Other Islamic bankers say in public that they view the advent of the new institution as good for the market as a whole because of Citibank's prestige as a global conventional bank. The setting up of CIIB points to the steady growth of interest in Islamic banking among some conventional banks (Islamic Banking, MEED Special Report, 12:7:96).

Although CIIB has a separate capital base it will be able to draw on Citibank's financial expertise and its worldwide network.

But Memon says other banks should not be unduly worried by the new entrant. 'I think the market is fairly large and growing.'