(U) ISLAMIC FINANCE (C-TN6-00207)

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 EXPLOITATION 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