Harvard Business School is carrying out a comprehensive study on the issues affecting the development of Islamic banking. The study is being sponsored by institutions in the Middle East and US, and is aimed to lay down some basic principles to support the growing interest in Islamic banking methods and practices.

Several banks in the region are planning to increase their Islamic banking activities, including the Jeddah-based National Commercial Bank (NCB), which is supporting the Harvard project, and the US’ Citibank.

The Harvard study is expected to be completed by the end of 1995, and the results are planned to be published in the first quarter of 1996. It is being carried out by about 20 specialists and aims to provide a definition of Islamic banking, a survey of Islamic economics, information about the size of the market and ways of developing it, and an examination of existing Islamic products.

The sponsors are NCB, which was the initiator of the plans, the Boston- based portfolio manager Wellington Management, which has worked with NCB on its global Islamic equity fund, and Goldman Sachs. The Jeddah-based Islamic Development Bank is also sponsoring the project and providing expertise in the sharia law, which governs Islamic banking practice.

The US’ Citibank is planning to expand its activity in Islamic banking. At present, the institution operates an Islamic banking unit within the bank, but is reported to be considering setting up a separate banking arm with its own capital base in Bahrain.

NCB is also developing its Islamic banking activities, and is now carrying out a market survey of the Saudi market, which is expected to take three to six months (see Saudi Arabia).