islamicbanker.com

The last few years have witnessed a significant change in the Islamic banking industry in Saudi Arabia, with new products following increased demand.

Market Size

Three of the leading banks in Saudi Arabia claim to be fully shari'ah compliant: Al-Rajhi, Al-Jazira and Al-Bilad. The below figure shows credit facilities used by two Saudi banks.

Types Of Shari'ah Compliant Credit Facilities Used By Two Saudi Banks: End 2006, (% Of Total Credit Portfolio)

Source: Annual Reports

Another important milestone was achieved recently in the Saudi market, with 95% of new customer lending conforming to Shari'ah principles (Iqbal 2007).

In terms of the takaful market, there has been an effort to liberalise the market by the Saudi government, with many analysts expecting the market to grow to $8bln within 10 years, from $1bln at current levels.

Key Developments

Jul. 2008: Abu Dhabi University signs a memorandum of understanding with International Centre for Education in Islamic Finance of Malaysia (INCIEF), with the objective of providing training and development for the industry.

Jun. 2008: Dubai’s International Financial Centre Authority (DIFC) pushes for more transparency from scholars. This follows comments by Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) that 85 per cent of Islamic bonds do not conform to Shari'ah principles.

May. 2008: Citigroup confirmed that it was in the process of launching a series Shari'ah compliant products, aimed at the corporate market.

Mar. 2008: UAE plans to centralise zakat management, with the Zakat Fund playing an import role in this project.

Apr. 2008: Former chief economist at the Islamic Development Bank, Professor Mannan, argues for a "cash waqf" (endowment in cash). This project will collect funds for educational and other charitable projects.

Feb. 2008: Salma Islamic Arab Insurance Co., one of the largest takaful and retakaful operators highlights Saudi Arabia as a key market for future growth.

Feb. 2008: HSBC Amanah expects revenues to increase by over 60 per cent led by its Saudi unit.

Sept. 2007: Key Malaysian takaful player, Takaful Ihklas Sdn Bhd, submits an application to expand into Saudi Arabia.

Key Statistics

Population

28 million
- 97% Muslim
- 3% Other (these figures include expatriates)

Economics

GDP: $446 billion
- GDP per capita: $21,200
- Labour force: 6.62 million (more than 35% of the population in the 15-64 age group is non-national)

GDP by sector:
- agricultural (4.2%); industry (67.2%); services (28.6%).

Unemployment: 25% (Unofficial estimate, 2004)