DAR AL HARB / ISLAM: BANKS GET RELIGION, NOT CHRISTIANITY, BUT ISLAM

Banks get religion to lure Muslims
By JAMES CALDERWOOD

Banks used to offer free coffee mugs to attract customers. In the Middle East, Malaysia and Europe, a new crop of Islamic banks is luring customers by offering "divine rewards" that include trips to the Muslim holy city of Mecca.

"Reward points, bonus points or mileage points simply don't compare with the divine rewards that come with the Al Islami credit cards," Dubai Islamic Bank said in recent newspaper advertisements.

Even for those hardened to advertisers' gimmicks, the link between God and credit cards would be enough to raise the eyebrow of any potential bank customer. But on closer investigation "divine rewards" turns out to be a misnomer for the bank's loyalty program: You get a partial refund on the card's fees -- if you pay the bills on time.

Islamic banking was once viewed as a phenomenon of a few conservative Arab countries, but now the practice is bursting out of its traditional market and luring customers by offering the mundane banking products with a Muslim twist.

Abu Dhabi's First Gulf Bank has upped the ante with its "Makkah" credit card. Named after Mecca, the holiest city in Islam, big spenders will eventually earn enough reward points to earn a flight to the Saudi Arabian city. Unfortunately, it can't be used for the Hajj, the period of the year when millions of Muslims cram into the holy city to complete the journey they must do at least once in their lives.

The chief difference between Islamic and traditional banking is that Islamic banks work to avoid the Muslim ban on charging or paying interest, usually by substituting a fee. Islamic versions of credit cards, personal finance, savings and checking accounts, mortgages and bonds are now available which comply with Islamic law, or Sharia.

"It's very important for me to open an account in this bank because they don't take interest. As a Muslim, it's the most important thing," said Atta Hassan el-Atta, a Dubai-based customer of Dubai Islamic Bank.

Another goal at the top of the Islamic bankers' agenda is ethical investment. Banks want to ensure their money won't be funding activities that don't sit well with Islamic theology, such as businesses involved with alcohol, gambling, pork, weapons or usury.

An International Monetary Fund study found the number of purely Islamic institutions has soared from 75 in 1975 to over 300 in 2005, and that figure doesn't even include the wealth of western financial companies that are now dealing in Islamic products.

There's even Islamic insurance. The principles are different, based on a system of mutual assistance the customer joins a collective pool of funds can be used by those who need it.
Islamic scholars feel that conventional insurance schemes involve an element of uncertainty, which is like gambling. Conventional insurance companies also like to put their money in interest gathering investments, which means it's out of bounds for a strict Muslim.

Globally the Islamic insurance market is estimated to be worth $2 billion, but premiums are expected to reach nearly four times that figure by 2015, according to Zawya.com, a Middle East business information site.

Islamic banking is most dominant in the seven countries of the Arabian Peninsula, led by Saudi Arabia. More than 30 percent of Saudi bank assets are classified as Shariah compliant and the figures for other Gulf states range from 10 to 20 percent according to British-based Islamic Banking and Finance magazine.

Saudi's Al Rajhi Bank is currently the world's largest, followed by Kuwait Finance House. Dubai Islamic Bank is No. 3, according to Zawya's rankings.

The Dubai International Financial Center, a bank enclave governed by western-style financial laws, predicts Islamic banking will quickly carve out a huge share of the global market. The Dubai center estimates that as much as 50 percent or more of the savings of the world's 1.2 billion Muslims could be held as religiously compliant products within the next decade.

Traditional banks are also getting in on the Islamic banking trend. American and European banks are offering Islamic products to hang onto their clients and capture a share of the booming market.

Lloyds TSB kicked off its Islamic banking services two years ago in five branches in Britain. Now, those services are available in 1,900 branches, said bank spokesman Emile abu-Shakra.
Even Wall Street stalwarts like Morgan Stanley are jumping in, developing sophisticated Islamic instruments that involve securitization, or borrowing against a company's future revenue. This normally involves interest bearing investments. That's quite a step forward considering they were recently struggling to come up with financial products as simple as savings accounts.
Dow Jones has compiled 60 indexes that track sharia-compliant investments.

"As more Western institutions get involved in Islamic finance, it's going to raise the profile, to the point of a parallel system," said Rushdi Siddiqui, New York-based global director of the Dow Jones Islamic Market Index.



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1) Banks get religion to lure Muslims