Putrajaya, Malaysia - An international Islamic mega-bank capitalized at $1 billion will be launched next year as the Muslim world's answer to Western banking giants, a senior industry official said Tuesday.
Shareholders comprising the Islamic Development Bank, the financial arm of the 57-member Organization of the Islamic Conference, and other private banks will hold a meeting in Malaysia on Wednesday to finalize operational details of the Wholesale International Islamic Bank.
The entity was proposed by the Bahrain-based General Council for Islamic Banks and Financial Institutions to help finance large development projects in Muslim nations and underwrite the needs of the Islamic financial industry on a large scale. The religion forbids charging interest and investing in gambling or liquor companies.
Despite the rapid growth of Islamic banking in recent years, foreign banks still dominate project financing in Muslim nations because many Islamic banks are under-capitalized, said the council's secretary-general Ezzedine Khoja.
About 73 percent out of some 285 Islamic banks and financial institutions worldwide have paid-up capital of less than $25 million, he noted.
''The big projects are financed unfortunately by the foreign institutions because there is an absence of a huge Islamic bank with a large capital base,'' he told reporters at an Islamic banking forum in Malaysia's administrative capital, Putrajaya.
''Now the market is controlled by the Western banks but I think we can play a big role in providing the funds through this international Islamic bank. It will take us one year to establish it,'' he added.
Islamic banks are now managing close to $300 billion in assets globally, but Khoja said this figure is expected to grow 20 percent annually in the next decade.
With growing competition from Western institutions, Khoja urged Islamic banks to merge to consolidate, saying authorities should only encourage the establishment of new Islamic banks with a minimum paid-up of $100 million, he said.
Separately, Singapore wants to enter the Islamic financial services market, and local companies could soon be offering Islamic bonds to global investors, a senior government official said Tuesday. The city-state already has a major banking and fund management industry, backed by government support, and promotes itself as a regional financial center.