BAKU, Azerbaijan, October 28. The choice of a model for the development of Islamic financing in Azerbaijan should take into account the peculiarities of the local market, demand from clients, and the role of the state in promoting this direction, the Global Head of Islamic Finance at Fitch Ratings, Bashar Al Natoor, said in a response to Trend’s inquiry during the webinar dedicated to Islamic financing markets.
He noted that a country can consider both the creation of Islamic windows within conventional banks and the development of full-fledged Islamic banks; however, there is no one-size-fits-all solution for every market. Different models are being successfully implemented in various countries.
“So there is no one-size-fits-all, to be very honest,” Al Natoor remarked.
According to him, the choice of approach depends on many factors, including fundamental characteristics of the market, goals of development of Islamic financing, and driving forces of demand.
He mentioned, as an example, Saudi Arabia, where conventional banks offer Sharia-compliant products through specialized divisions _ Islamic windows- alongside fully-fledged Islamic banks.
“If you look at the bank financing in Saudi Arabia, around 85%, roughly, of that financing is Sharia-compliant. If you look at Kuwait, which is another story, you will find that Islamic finance is offered only by Islamic banks, and the sector represents around 50% of the banking sector there. So you have two successful stories, but different drivers and different fundamentals,” Al Natoor explained.
He also highlighted the experience of Malaysia, where the state has, for over a decade, actively promoted the development of Islamic finance and set targets to increase its market share.
According to the Fitch representative, when determining an appropriate model, it is important to understand what is driving the industry’s growth: government policy and "top-down" initiatives, or genuine demand from clients and businesses, a "bottom-up" approach.
“So it is the business case coupled with the push, top-down or bottom-up, and usually it's a combination of both,” he stressed.
According to Al Natoor, when selecting a model, it’s necessary to separately explore the market conditions in each country, as well as the goals that the authorities intend to achieve through the development of Islamic finance.
“So it is something that needs to be really explored on a case-by-case basis rather than, is this the right one or the wrong one,” he concluded.
