Qatar ruling catches banks off guard

08 February 2011

Move to make conventional banks close Islamic banking operations highlights a lack of transparency

Qatar’s decision to force conventional banks to close down their Islamic branches has not been taken well by the market. It is no surprise.

Banks had already been forced to stop selling Islamic products through Islamic ‘windows’ in existing branches as in much of the rest of the Gulf, and open up whole new sites purely for Islamic products. That led to a costly investments in new branch networks.

The lack of consultation and failure to give banks time to even comply with rulings paints an unfortunate picture for Qatar, which has ambitions to be a global player in diplomacy, culture and finance.

Even if the ruling is now repealed, which seems unlikely as the central bank has said it is acting to “manage the risks” in the Islamic finance industry, executives will be forced to wonder how transparent the operating environment is in Qatar.

Rapid changes in regulation, made without industry-wide consultation and explanation will frighten off firms looking to invest.

Islamic banks in Doha will benefit from the rule change as a large part of the competition will be wiped out, but will the customer? It is unlikely that the purely Islamic banks in Qatar have the capacity to handle the entire market.

A better option could be to issue Islamic banking licences to conventional banks that would require them to keep their Islamic deposits completely separate from their conventional business. Unless some sort of compromise is found, Qatar could find it has created a bigger risk to its economy than the one presented by the Islamic finance industry.

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