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Islam: Western Bankers Learning To Attract Muslim Clients

Small investors outside the Cairo Stock Exchange discuss, on March 14, the continuing drop in the value in once-booming stocks across the Arab world. (epa) The soaring price of oil has left many Muslims with large sums of cash to invest. A conference in Switzerland highlights the potential for Western banks, but also the challenges they face as they seek to attract the money of the many Muslims who want their investments to comply with the rules of Islamic banking.

PRAGUE, March 28, 2006 (RFE/RL) -- As oil prices rise, oil-rich Arabic states are growing richer -- and so too are many of their citizens. The richer they get, the more they have to invest. And many want those investments to comply with Islamic rules on banking and finance.

It is that trend -- and the desire of Western banks' efforts to cater to the increasing demands of their Muslim clients -- that prompted the decision to hold an Islamic Wealth Management conference in 2005.

Speaking on March 28, as this year's conference kicked off, the event's organizer, Michael Gassner, said that the aim is "to inform and educate private bankers and asset to manage Muslim high-net-worth individuals."

More and more Muslims are turning to Western banks -- but they are also demanding services that do not clash with their faith.

That is something that many bankers clearly feel they should know more about. Most of the participants are Swiss -- hardly surprisingly, given that Switzerland is the world center of private banking and since banks in Geneva alone have an estimated $200 billion or more in Muslim-owned private accounts. However, the conference has attracted banks from around the globe -- from countries such as Nigeria and Singapore -- as well as some of the best-known financial institutions in the West, such as ABN-Amro, Deutsche Bank, and Citigroup, and the Dubai Financial International Center, which aspires to vie with New York as a center of global finance.

There is plenty of business for the banks. More and more Muslims are turning to Western banks -- but they are also demanding services that do not clash with their faith.

Western banks, Gassner says, have a "good" position in many Muslim countries, with a market share of 20-30 percent in the Gulf states. But, he continues, Western banks' failure to provide a full range of financial products for Muslims is holding them back.

As soon as more products are available, more Muslims will turn to Western banks, he argues.

But producing tailor-made services can be difficult, since Islamic principles of banking and asset management differ from the services Western banks offer.

One well-known difference is the prohibition on interest, made to ensure that Muslims do not fall too far into debt. "But you can make other transactions," Gassner points out. "Loans shouldn't get a reward or return but you can invest in assets like real estate or you participate in a company's profits and losses and get returns not based on interest."

Wealth And Charity

Islamic principles also place substantial philanthropic obligations on the wealthy. As a result, topics at the conference include poverty alleviation and discussions on the Muslim notion of charity, the Zakat.

One of the five basic pillars of Islam, Zakat is the concept of purifying one's wealth to gain Allah's blessing.

Zakat obliges Muslims over a certain wealth to give some of their surplus money to any of eight categories mentioned by the Koran: to the poor, the destitute, the enslaved, debtors, wayfarers, Zakat collectors, those furthering the cause of Allah, and those sympathetic to the faith.

The sums involved can be substantial: Islam obliges Muslims to give away 2.5 percent, 5 percent, or 10 percent of their income. Knowing which band to use can be complicated, since Zakat payments depend on the nature of those assets, how long they have been held, and how they were created. For example, a farmer pays 10 percent of his income from crops watered by the rain, but only 5 percent if irrigation costs are involved.

Western banks interested in keeping wealthy Muslim customers happy therefore face the challenge of learning the intricacies of how to calculate Zakat.

But with the number of wealthy Muslims rising, Western bankers and asset managers have plenty of reason to try and meet their Muslim clients' demands.