With so many infrastructure projects in Qatar already under construction or coming up in the next few years, what opportunities exist for Islamic project financing?
AL-DEREAI: There are a lot of projects that we have in Qatar coming up in the next few years. Islamic financial institutions have very good products which are construction products. That means that whatever you want to construct, you can have these contracts with Islamic institutions. Moreover, different parties can join together with these contracts depending on how many parties are involved in a project. For example, the construction contract can depend on three main things; the Islamic institutions, the client, and the contractor. These three parties can join together and have sub-parties inside the contract, which is very useful for society and the country as well. That is one type of contract. The second one is called ‘Al Murabaha’, which is where I have the money and you have the idea. I give you the money and you work with this idea to make a construction project or whatever else is decided from the beginning of the contract. We also have a partnership, where you have money, I have money, and we can decide to work together through the different project. These kinds of instruments are more useful than conventional instruments, which are about lending money and that’s it. So it depends on the customer or the client. What he needs, the institutions can provide.
How has the international financial crisis impacted the Islamic financial services industry?
AL-DEREAI: The crisis has impacted the Islamic institutions. However, we have to differentiate between two things, the individual institutions and the global sector. The global sector, of course has been impacted and these banks are part of the global system. As a part of the global system, yes of course they have been impacted because they are affected by the shortage of money, collapse of institutions and the rise of debt levels. All these affect Islamic finance in an indirect way. But for individual banks, they have not been impacted because they cannot enter any non-compliant instruments which could lead to the crisis. That’s why all the Islamic institutions are not involved in the things which have caused the crisis.
How is the Islamic banking sector addressing the challenges with respect to liquidity management?
AL-DEREAI: Unfortunately, the lack of liquidity in Islamic banking is the most important problem that Islamic institutions could face. That’s why in the future you could see a lot of mergers between Islamic institutions to solve this problem. It’s a good idea to have a lot of Islamic institutions but since the weakness comes from the shortage of liquidity, it’s better to merge than to have lots of individual institutions with capital that cannot be adequate for the next 10 or 15 years. We believe merging between the Islamic banks is better than having lots of numbers of Islamic institutions that face these kinds of problems. This was actually one of the topics at our last conference, how to solve the liquidity shortages in Islamic banking. The participants gave some solutions, but actually, the solutions have to be practiced from different angles. One of these angles has to be mergers between the big banks, the big institutions, so that we can have strong banks that can face the liquidity problem. Additionally, the mergers have to be international. This is what I believe because the crisis is too much for small institutions to struggle alone so the mergers have to be international.
How successful have Islamic financial institutions been at developing new instruments to leverage existing markets and enter new markets?
AL-DEREAI: This is the challenge for Islamic banking. Islamic finance has to develop over time to face the needs of the market and the needs of the people. You cannot depend on the products that were developed over 40 years ago. We have to think about new products that can cover the needs of the society and the needs of the countries. If you compare the conventional products and the Islamic financial products you will see a big difference, a big gap. The conventional banks depend on lending and borrowing and that’s it. Whatever you need, whatever you want, it’s just about lending and borrowing, full stop. For Islamic banking it is different. It depends on what kind of needs the customer has. We can custom make the products and the contract for different people and different levels of people as well.
Unfortunately, the lack of liquidity in Islamic banking is the most important problem that Islamic institutions could face. That’s why in the future you could see a lot of mergers between Islamic institutions to solve this problem.
How geographically diversified is your client base? Why are Islamic institutional investors flocking to Qatar?
AL-DEREAI: We have different clients all over the world in countries like Malaysia, Mauritius, Austria and the UK. Qatar is stable, safe, the economy is booming and there is a good platform for institutions. The stability of the rules is very important for people who want to invest. That’s why people are choosing Qatar to have these kinds of services. Moreover, they want to invest in the country. You know, people say that capital is a coward so people want to have a safe country to invest in with clear rules and regulations. That’s why I believe that Qatar is the most stable economy in the world nowadays.