What role does Islamic finance play in the economies of states belonging to the Gulf Cooperation?
Apparently, quite a substantial one. Research has demonstrated that Islamic finance has had a significant effect on economic growth and development in Bahrain, Qatar, Kuwait, Saudi Arabia, and the United Arab Emirates, the five countries of the GCC. About half of worldwide Islamic finance and assets are concentrated in the GCC states, with Saudi Arabia providing the largest share (nearly forty percent of the total.) Although the United Kingdom has joined the sukuk market and much of the activity is shifting towards the Asian market, there is no question that the GCC states will continue to drive the global Islamic financial system for the foreseeable future.
Although the sukuk market has only begun to take off in recent years, it is important to understand that the Islamic finance sector has been in development in GCC states for almost thirty years, at least since the early seventies. The first banks that could be classified as Islamic in GCC states were the Dubai Islamic Bank and the Kuwait Finance Bank, both founded in 1975. Although the Asian market is the hotbed for Islamic financial activity, GCC states are clearly the principal backers of Islamic finance initiatives around the world.
By the beginning of 2012, more than fifty banks in GCC states were offering full Islamic banking services and products, and today these countries have what is considered to be the best developed Islamic financial system in the world. The Islamic financial system in GCC states contains a particularly large banking sector with a well developed interbank money market. There is also a growing sukuk (Islamic securities) and takaful (Islamic insurance) market. One aspect of Islamic banking in GCC states is that it coexists with conventional banks and operates side by side successfully.
Currently, there is a trend towards diversification in Islamic banks in the GCC states. Well established banks that have existed since the seventies operate next to new players in the market. There are also banks that formerly operated as conventional banks that have converted completely so as to comply with Shariah. Many conventional banks in the region also offer Islamic banking services to their clients as a special service or in a specific window.
