For the moment, Dubai holds the title of Islamic banking hub - but it could soon lose ground, both to traditional competitors like Bahrain, Kuala Lumpur or London or newcomers on the scene like Singapore.

But the country that really laid the foundation and basic infrastructure of Islamic Finance and paid billions of dollars by establishing the prestigious institutes like IDB, ICD and ITFC etc. and spending billions of dollars over last several decades and deserves to be global hub of Islamic finance and banking is Saudi Arabia.

Saudi Arabia, the Gulf's largest economy and a G20 country, is the strongest and well-deserved contender for the title and has an edge. Its financial clout and the development of the King Abdullah Economic City strengthens the case.

"The only impediment is that it may not be the easiest place to obtain banking licenses especially now, given the plight of the banking industry in Bahrain and Dubai, but Saudi Arabia has always been very cautious.

The Saudi Arabian Monetary Agency (SAMA) guides and supervises the financial sector - that already made Saudi Arabia the safest haven in the world amid the current debt storm.

It would be a shame to lose this lifetime opportunity in the presence of prestigious institute like IDB, ICD and ITFC being ideally based and headquartered in Jeddah.

These institutes have already produced scores of talented bankers (in Islamic finance) that are spread now in the entire region and beyond and serving the Islamic finance and banking industry.

But this achievement wouldn't be easy without full government support. With a strike of a degree, this industry could create thousands of jobs for Saudi men and women.

Dubai, despite its liberal policy and religious tolerance, has benefited from government support in creating a regional Islamic finance hub due to a favorable regulatory environment and strong domestic ties to Islam and Shariah.

It has more listed sukuk, than anywhere else.

What's more, Dubai is cosmopolitan and business-friendly enough to lure talent from far a field.

The industry is not just limited to providing jobs to bankers but a lot of other support industry also flourishes like law offices, Shariah-complaint insurance companies, leasing and mortgage companies etc.

In the absence of any competition from countries like Saudi Arabia, Dubai will continue to be a major driver for Islamic finance in the near term, as it attempts to recycle the region's petroleum wealth into real estate, tourism, technology and other anchors of a truly diversified economy.

Dubai's attractions are many. In addition to glitzy and modern shopping malls, it boasts numerous free zones that allows for 100 percent foreign ownership, 100 percent repatriation of capital and profits, exemption from corporate tax and no import duties.

But its central role in Islamic finance isn't assured over the long haul.

The recent financial crises have severely dented Dubai's reputation and its financial soundness.

The Islamic finance market, that was once a local affair, deeply rooted in the Gulf region only, is now spread in Far East and Europe and somewhat in the US while Africa still remains a virgin market, offering enormous potential and unlimited opportunities.

Appreciating the potential of this $ 1 trillion and growing industry (expected to reach $2 trillion by 2013), the British government had voiced its determination to issue a sukuk and asked its Finance Ministry to start working on necessary regulatory changes by next year while it issues licenses to Islamic banks.

It has to be noted that sukuk is a $30 billion global industry.

In recent years, Islamic finance has grown rapidly across the world, conservatively estimated at 12 percent a year.

Malaysia has been strong in the Far Eastern market for the past decade. But now, Asian countries - with tiny Muslim populations - are also looking to join this process.

Japan wants to be the first nation in the G-7 to issue a sovereign sukuk bond - that is, if Britain doesn't get there first.

Among cities outside the Muslim world, London is the strongest Islamic finance center and it leads race to be Shariah capital.

London will give Malaysia and Dubai and the rest of the Islamic world a run for its money, as London has all the strengths of a traditional financial center, from a solid infrastructure to a qualified pool of prospective employees.

Singapore, also seeking to attract Islamic capital, has the same lures but to a lesser degree.

London is already enjoying some success as a focal point for international Shariah-compliant investors, with both corporations and countries listing sukuk bonds in Britain.

London is also benefiting from New York's relative indifference to Islamic finance, which removes from the race a traditional long-standing rival for global capital because America's financial capital or political leadership has a narrower appetite for Islamic assets than other centers.

So far New York investors have shown an interest in Shariah-compliant equities, but not in Islamic bonds or Takaful, (Islamic insurance).

Saudi Arabia deserves all credit for its tireless persuasion to make Islamic banking industry in the world.

Saudi Arabia's task to introduce Islamic banks into conventional banking systems was challenging and tough. Islamic banking is steadily moving into an increasing number of conventional financial systems.

It is expanding not only in nations with majority Muslim populations, but also in other countries where Muslims are a minority, such as the United Kingdom or Japan.

Similarly, countries like India, the Kyrgyz Republic, and Syria have recently granted, or are considering granting, licenses for Islamic banking activities.

In fact, there are currently more than 300 Islamic financial institutions spread over 51 countries, plus well over 250 mutual funds that comply with Islamic principles.

This industry is currently experiencing growth rates of 22 percent per annum despite a tough investment climate - and this growth trend is expected to continue.

This golden opportunity shouldn't be missed simply because of arrogance or ignorance and this country should get what it rightly deserves.

© Arab News 2012

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