Gulf oil producers and other countries should switch to Islamic banking as an alternative to the traditional financial system that has triggered the global economic distress, two Arab experts have said.

While many traditional banks in the region and worldwide have been severely hit by the crisis, Islamic banks have easily weathered the storm and continued their rapid growth to demonstrate that such a type of banking is a safe practice and the right alternative business, they said.

"This fact has been quite clear to all, particularly those financial and economic experts who have poured theories and analysis on the world about the causes of the crisis… this fact has been embodied by the Islamic banks, which have come out of the crisis more immune and stronger in the face of storms," said Adnan Ahmed Yousuf, Chairman of the Beirut-based Union of Arab Banks (UAB), which groups 470 banks in the region.

"These experts themselves, who had been strong advocates of traditional financial services, are now advising the world to return to Islamic banking… using the word 'return' is well-placed because such type of banking remains the real source and basis of banking business," Yousuf said in an article in the UAB's monthly bulletin, the Arab Banker.

"The fact is that the world is gradually shifting to investment in Islamic banking and this trend is set to pick up following the global crisis… this is evident from the sharp increase in Islamic financing… high growth is projected to be maintained after the top 100 Islamic financial institutions announced a growth target of 26.7 per cent in 2009," Yousuf said.

"The Islamic banking system is imposing itself as the most important solution to the global economic woes… A large number of Arab nations are now revising their strategies in this respect… Could the Islamic banking business be the solution in such circumstances?" In another comment, an Arab official said the global financial turmoil should prompt regional nations to avoid what he termed unsafe world markets and concentrate on local markets in their investment.

But Fahd Rashid Ibrahim, Director General of the Inter-Arab Investment Guarantee Corporation (IAIGC), said that regional states must first push ahead with reforms and improve their investment climate. He also urged them to opt for Islamic banking as an alternative to global systems.

"This crisis should serve as a motivation for our countries and leadership to rely on themselves and reduce this absolute faith in Western economic attitudes and systems… it is definitely a unique opportunity to present Islamic financing tools and systems as an effective alternative to the global financial and economic systems," said Ibrahim, whose Kuwaiti-based group is one of the main Arab League financial organisations.

"Under those global systems, financial institutions got out of their way to neglect their real development role and become involved in practices that amount to gambling and abusing the resources of the people… it is time to come up with ideas, including Islamic banking, to rebuild the global financial system and Gulf countries have a major role to play in this field."


High growth

Islamic banks in the Gulf and other countries are still recording high growth in their operations at a time when hundreds of traditional banks worldwide are reeling under heavy losses and collapses, Yousuf said.

In an article in the UAB's Arabic-language monthly bulletin, the Arab Banker, his figures show that the Islamic banks' assets have jumped since November 2007 by nearly 27.6 per cent to around $6.3 billion (Dh23.1bn) at the end of 2008.

The Gulf emerged as the largest base for Islamic banking, which leaped by 7.5 per cent to around $262bn in the same period. The surge meant that Gulf and Arab countries accounted for 80 per cent of the Islamic banking business worldwide in 2008.