According to Malik S Sarwar, CEO of the recently formed New York-based Sarwar Wealth Advisors, the world has plunged into a deep crisis primarily because of the greedy and complicated products otherwise known as derivatives.

Out of the crisis has thus emerged a desire for Islamic banking, a term which proves to be more than just a latest buzzword. The Western World is now looking at it as a "panacea".

"The western regulators and banks, by and large, are very keen," Sarwar told Emirates Business. "There is an appetite to understand this because of the crisis and also because of the growth in Muslim Americans, Muslim British and Muslim European population."

Standardisation, however, remains a problem as each bank and each country has its own Shariah board putting a grey area on what is and what is not acceptable.

"How do you un-sell that if you have sold the product? That causes angst in the customer mind-set and causes angst in the industry," he said, adding that Islamic finance has a dearth of expertise and has a limited product range.

Sarwar also speaks candidly on issues of citizenship, credit ratings and the West's general impression of the UAE.

In terms of financial services, what are the lessons that Dubai should pick up from the crisis that was started by the Western developed states, which they have used as benchmarks?

To get to that, we have to know why the crisis happens, what is Dubai's role and how can it avoid it? The crisis happened because of huge leverage developed from easy money and the Western system got ahead of itself to creating derivatives. What they should learn are three things – first is the Kiss principle, which is keep it simple stupid. For example, in the hedge funds industry there are some strategies called the black box strategy, which Bernie Madoff used, and basically says trust me, give me the money as we have a formula that will give you a one per cent profit a month. The problem is you don't know what it is, it quickly becomes a black hole, you lose your money and you don't know it happened. So the learning is to keep away from complicated and greedy products and keep it simple.

Second, clients are looking for somebody to trust. That means client servicing is 10 times more important that client selling. A lot of banks are making a huge mistake because they are reducing the head-counts. Except a handful everyone is laying off the lower end support staff, including the service staff. What needs to be done is this is the time where you grow your service staff because clients who have lost their trust in banks will appreciate that and if you invest in servicing today, you will make money from the same clients later on.

The third that they have to make a difference is on SRI or Socially Responsible Investing. SRI by definition is more conservative way of doing business and SRI in this region is Islamic finance. In Islamic banking, you don't make money from money; there is a tangible asset thus you don't do derivatives. So I think the opportunity for the UAE and the GCC is to focus on Islamic finance. If you are a regular bank, then you have a window and if you are an Islamic bank – that is a huge growth area of opportunities.

Those who invest aggressively in Islamic banking will win. However, Islamic banks don't have enough products to meet the West or world's standards. If they were to recruit and invest in quality people, products and processes of Western standards then even non-Muslims will buy Islamic products.

In Malaysia, the biggest purchasers of Islamic products are Chinese. Malaysian Islamic products are a little bit different from here and there are sensitivities with regard to that, but irrespective of that issue, Islamic banking has a lot of potential to grow faster by bringing in quality standards from the West and if they do it right, it will be their growth engine in this part of the world and it will spread to UK, US and Asia.

Islamic banking is indeed like ethical banking and just as ethics is somehow relative, standardisation remains a key problem…

That is a problem with no easy solution because all banks have their own Shariah boards and different countries have their own Shariah boards and that is a work in progress. That is a challenge because if you approved something, it is sold and then later on, it comes out that you cannot sell it because is not acceptable under Shariah standards. The problem is how do you un-sell that if you have sold the product? That causes angst in the customer mind-set and causes angst in the industry. But this is a natural growing pain.

Another challenge is that studies show that about 25 per cent of Muslims say, "I will only invest and do transactions in Islamic way"; 25 per cent of Muslims say, "I don't care. Islam is my religion, I will buy whatever I want"; the bigger group is a 50 per cent group who says, " I am not a die-hard Islamic but if I can get similar benefits and returns on Islamic over non-Islamic, then I will go for Islamic". The challenge is how do you get this 50 per cent to become Islamic, and that is for Islamic banks to prove that they can do that and to do such they need to bring in expertise to world-class standards.

But if the client were a non-Muslim investor, would it make a difference for him to invest to Islamic products?

Today the client would not go to an Islamic bank because the product range is very limited, the quality of the sales people is work in progress.

Islamic finance has become the latest business buzzword in the West, but is there really a growing appetite and demand from the people there?

The western regulators and banks, by and large, are very keen. The US has 435 congressmen and women, two among them are Muslim Afro-Americans.

I happen to be a friend of both of them. One of them is in the banking committee. We were just starting a conversation informally and the committee is beginning to look at Islamic banking as a panacea for the future. So there is an appetite to understand this because of the crisis.

Also, because of the growth in Muslim Americans, Muslim British and Muslim European population, the market demand is growing. So when you put the effect of crisis and the growing Muslim population together, there is a big opportunity for Islamic finance to grow in the US and UK initially.

For some analysts, what matters is the performance and how the funds/assets is managed for them, like conventional banks, some Islamic banks fared well, while some didn't do well…

On asset management, private equity there are certain things you can and cannot buy, then whatever you have is pure Islamic and there is no controversy on those ones. The controversy is how good are they at picking their investment but that is true in money manages business anyway.

It thus boils down again to derivatives and all the complicated products, which were blamed for this whole crisis. Have the ratings agencies actually lost their credibility?

The three major rating agencies – Standard and Poor's, Moody's and Fitch- rated all the junks that caused the crisis AAA. Their indicators are based on the past trend, not on anticipation. They did lose their credibility, but they are one of those things that you have to have and there are only three firms globally and all US-based. Because there is nothing to replace them so you just beat them down and say, behave next time and they always promise they will till the next crisis hits.

Dubai is preparing for a sovereign credit rating in the second half and dozens of other Dubai-based companies are also planning to do so. Is it still a good move?

I think so. If Dubai wants a rating today, it may not be the best thing, but if they prepare the groundwork of the rating in the near future as the economy improves that is good. Because if sovereigns get a rating, then the corporations under the sovereigns are able to know what sort of ratings they will get and that allows them to tap into other markets with different customer base.

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