Gulf banks and individual investors are planning to set up a $3 billion Islamic investment bank and an Islamic stock exchange in Bahrain by 2009, the chief executive of Albaraka Banking Group said. “It will be the largest bank in the region for the issuance of sukuk and will create a secondary market for sukuk,” Adnan Yousif told Reuters on Wednesday. Sukuk are bonds that comply with Islam's ban on interest. Albaraka is one of the lenders that is looking to invest in the new bank, which will have paid-up capital of $3 billion and plans to start operations in 2009. The project is being promoted by the chairman of the General Council of Islamic Banks, Sheikh Saleh Abdullah Kamel, Yousif said. Yousif said Bahrain also planned to set up a stock market in Bahrain complying with Islamic law. The 22 Islamic banks in the Gulf have in excess of $300 billion of Shariah-compliant assets and are set for double-digit growth over the next 10 years, leading global financial services firm Morgan Stanley has said. The company predicted strong growth for the Islamic banking sector driven by a robust outlook for the region and an increasing share of system assets. “A buoyant macro-economic backdrop, increased infrastructure spending and continued diversification from oil economies are driving the banking sector generally,” said Marwa A. Elsheikh, an analyst at Morgan Stanley, in the firm's report “Middle East and North Africa Islamic Banks - Structural Growth Story” recently. Morgan Stanley also initiated coverage on Dubai Islamic Bank and Kuwait Finance House in a report that forecasts that Islamic assets in the GCC would grow to 18 percent of system assets by 2012 from its current 13 percent. “In terms of factors behind the growth in Islamic finance, a greater focus on Islamic identity, government backing for the development and promotion of Islamic banking, low penetration and competition among conventional banks make Islamic banking more attractive and more favorable industry dynamics are all likely to fuel the growth,” said Elsheikh. The report suggests that, while the outlook for the sector remains strong, there are a number of potential hurdles to growth. Most Islamic banks lacked scale, the products were complex and there was no single global regulatory body. “Further, there are operational limitations, such as not being allowed to hedge, and there is often less transparency and financial disclosure than conventional banks,” Elsheikh said._ “However, despite these potential setbacks, the underlying growth drivers will more than offset these structural impediments,” he added. __
