C O N F I D E N T I A L STATE 093016


E.O. 12958: DECL: 05/02/2031
TAGS: PINR ECIN EFIN AL BA BK EG ID KU MU MY PK QA SA
SN, SY, TC, TU, UK, YM
SUBJECT: (U) ISLAMIC FINANCE (C-TN6-00207)

REF: A. 05 PORT LOUIS 000466

B. 05 KUALA LUMPUR 004086

C. 05 KUALA LUMPUR 003066

D. 05 KUWAIT 002197

E. 05 MANAMA 000747

F. 05 CAIRO 009387

G. 05 CAIRO 007466

H. 05 CAIRO 002593

Classified By: JON M. GIBNEY, ACTING DIRECTOR, INR/I


1. (C) AS POSTS ARE AWARE, POLICY MAKERS ARE INTERESTED IN
THE GROWTH AND IMPLICATIONS OF ISLAMIC FINANCIAL
INSTITUTIONS, WHICH OFFER PRODUCTS AND SERVICES DESIGNED TO
COMPLY WITH ISLAMIC LAW, WHICH FORBIDS PAYING OR RECEIVING
INTEREST, MANDATES THAT FINANCIAL TRANSACTIONS BE BASED ON
REAL ECONOMIC ACTIVITY, AND PROHIBITS INVESTMENT IN SECTORS
SUCH AS TOBACCO, ALCOHOL, GAMBLING, AND ARMAMENTS. ISLAMIC
FINANCIAL INSTITUTIONS INCLUDE BANKS AND NON-BANKS SUCH AS
INSURANCE COMPANIES AND INVESTMENTS FUNDS. MORE THAN 300
ISLAMIC FINANCIAL INSTITUTIONS OPERATE IN MORE THAN 75
COUNTRIES, WITH BAHRAIN AND MALAYSIA THE BIGGEST HUBS. TOTAL
ISLAMIC ASSETS EXCEED U.S. $250 BILLION AND ARE GROWING 15
PERCENT A YEAR, ACCORDING TO THE IMF.


2. (C) WASHINGTON ANALYSTS APPRECIATE THE DETAILS ON
ISLAMIC INVESTMENT PROVIDED IN REFTELS AND SEEK THE SAME TYPE
OF AND/OR UPDATED COMMENTARY REGARDING ISLAMIC FINACIAL
INVESTMENT CLIMATE IN THE FOLLOWING COUNTRIES: BANGLADESH,
BOSNIA AND HERZEGOVINA, EGYPT, INDONESIA, IRAN, MALAYSIA,
PAKISTAN, QATAR, SAUDI ARABIA, SINGAPORE, SUDAN, TURKEY,
UNITED ARAB EMIRATES, UNITED KINGDOM, AND YEMEN.


3. (C) AS POST'S TIME AND RESOURCES PERMIT, WASHINGTON
ANALYSTS WOULD APPRECIATE POST'S COMMENTARY, INSIGHT, AND
KNOWLEDGE ON THE FOLLOWING TOPICS RELATED TO THE GROWTH OF
ISLAMIC FINANCIAL INSTITUTIONS IN POST'S AREA OF
RESPONSIBILITY.


A. (C) ISLAMIC FINANCIAL INSTITUTIONS' VULNERABILITY TO
EXPLOI

TATION FOR ILLICIT OR TERRORIST PURPOSES, SUCH AS
STRUCTURING ACCOUNTS TO MASK ILLICIT ACTIVITY OR MONEY
LAUNDERING, PARTICULARLY THROUGH THE SHARIAH BOARD
RESPONSIBLE FOR ISLAMIC CHARITABLE CONTRIBUTIONS.


B. (C) IDENTITY OF THE INSTITUTION, SUCH AS THE CENTRAL
BANK OR MINISTRY OF SOCIAL AFFAIRS, WHICH REGULATES THE
ISLAMIC FINANCIAL INSTITUTIONS AND THE EXTENT TO WHICH
ISLAMIC FINANCIAL INSTITUTIONS ARE SUBJECT TO ANTI-MONEY
LAUNDERING LAWS COMPARABLE TO THOSE APPLIED TO TRADITIONAL
INTERNATIONAL FINANCIAL INSTITUTIONS SUCH AS CITIBANK.


C. (C) THE CAPACITY OF REGULATORS, SUCH AS THE CENTRAL
BANK, FINANCIAL SUPERVISOR, FINANCIAL INTELLIGENCE UNIT, AND
ANTI-MONEY LAUNDERING/CORRUPTION AGENCY, TO SUPERVISE ISLAMIC
FINANCIAL INSTITUTIONS EFFECTIVELY.


D. (C) LOCAL LAW REQUIREMENTS FOR ISLAMIC BANKS TO OPEN
BRANCHES AND HOW STRICTLY THOSE ARE FOLLOWED.


E. (C) ISLAMIC FINANCIAL INSTITUTIONS' CORPORATE GOVERNANCE
FRAMEWORK AND THE OVERSIGHT STRUCTURE OF THE ORGANIZATION'S
BUSINESS OPERATIONS INCLUDING THE OPERATIONS OF THE SHARIAH
BOARD.


F. (C) SHIFT IN HOW SHARIAH INTERPRET ISLAMIC LAW AS
APPLIED TO ISLAMIC BANKING ACTIONS TO BE EITHER BE MORE
STRICT OR LIBERAL.


G. (C) FINANCIAL HEALTH OF ISLAMIC FINANCIAL INSTITUTIONS
AND IMPLICATIONS FOR BOTH THE LOCAL AND INTERNATIONAL
FINANCIAL STABILITY.


H. (C) THE TYPES OF CURRENCIES FAVORED BY ISLAMIC
INSTITUTIONS, ESPECIALLY BANKS, TO INCLUDE THE EXTENT TO
WHICH THEY AVOID OR DISCOURAGE DOLLAR TRANSACTIONS AND THEIR
PREFERRED TRANSACTION CURRENCY SUCH AS EURO OR DOMESTIC
CURRENCY.


I. (C) HOW ISLAMIC FINANCIAL INSTITUTIONS' ARE EXPANDING
AND DEVELOPING THEIR ACTIVITIES INTERNATIONALLY AND WHICH
INSTITUTIONS ARE MOST AGGRESSIVE IN ENGAGING IN CROSS-BORDER
TRANSACTIONS.


J. (C) THE INDUSTRY'S PROGRESS IN CREATING NEW PRODUCTS AND
SERVICES SUCH AS FORWARDS, OPTIONS, LONGER-TERM FINANCING
SCHEMES, ETC.


K. (U) FOR THE MIDDLE EASTERN ISLAMIC BANKS WHO WERE
RECENTLY GRANTED LICENSES TO OPERATE IN MALAYSIA, PLEASE
COMMENT ON THE STRATEGIES THEY WILL PURSUE IN THAT MARKET AND
THEIR PROSPECTS TO ENGAGE IN NEW/MORE SOPHISTICATED BUSINESS
LINES/PRODUCTS THAN IN THEIR HOME MARKET.


L. (C) PLEASE COMMENT ON WHAT TYPES OF CUSTOMERS ISLAMIC
BANKS ARE CATERING TO, SUCH AS RICH INDIVIDUALS,
CORPORATIONS, POORER CLIENTS, PARTICULARLY THE FLAVOR OF
ADVERTISEMENTS ON BILLBOARDS.


M. (C) PLEASE COMMENT ON HOW LOCAL AND NATIONAL GOVERNMENTS
VIEW ISLAMIC BANKING, IN PARTICULAR IN PAKISTAN, EGYPT, NORTH
AFRICA, INDONESIA; COUNTRIES WHERE ISLAMIC BANKING HAS NOT
TAKEN HOLD IN THE MAINSTREAM. GOVERNMENTS, IN MANY
INSTANCES, HAVE BEEN THE CATALYSTS OF ISLAMIC BANKING IN
THEIR RESPECTIVE COUNTRIES.


4. (C) PLEASE CITE C-TN6-00207 IN THE SUBJECT LINE OF
REPORTING IN RESPONSE TO THE ABOVE QUESTIONS.


RICE