QATARI EXPERTS SEE SECURITY, BRIGHT FUTURE IN

C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000818 SIPDIS E.O. 12958: DECL: 11/18/2018 TAGS: EFIN EINV ECON QA SU SY UK EG PK YM SUBJECT: QATARI EXPERTS SEE SECURITY, BRIGHT FUTURE IN ISLAMIC BANKING Classified By: Ambassador Joseph E. LeBaron for reasons 1.4 (b) and (d) . -------------- (C) KEY POINTS -------------- -- The Dean of the Faculty of Islamic Studies at Qatar University blames the current global financial turmoil on rampant speculation and offers Islamic banking as a more prudent alternative. -- Islamic banking requires greater collateral and more partnership between lender and borrower, making it safer. He predicted that those nations whose financial systems practice such principles will fare better in the current downturn. -- Both the Dean and the General Manager of the Qatar Islamic Bank predicted that more countries would see the wisdom of Islamic banking, whose future is bright. Indeed, Westerners would do well to apply its principles, even if not its Islamic name. -------------- (C) COMMENTS -------------- -- Experts on Islamic banking in Qatar clearly believe that their system has advantages over tat employed by the West, and that the ongoing glbal financial crisis affords Islamic bankers theopportunity to grow their business. -- Islamic bnkersin Qatar can be expected to pursue those oportunities vigorously, yet prudently, wherever thy arise. End Key Points and Comments. ¶1. (C)At a November 3 meeting with Poloff, Dr.Hatem El Karanshawy, Dean of the Faculty of Islamic Studies at Qatar University and former Governor of the Egyptian Central Bank, attributed the recent global financial turmoil to speculation on the part of western bankers and investors, particularly in the area of derivatives. He predicted more serious turmoil in the future as the consequences of this widespread speculation became apparent. He pointed out that Islamic banking did not permit such speculation, and offered it to the West as an alternate financial system. ¶2. (C) Dr. El Karanshawy explained that under Islamic banking principles, there is a partnership between the lender and the buyer, and offered the case of an Islamic home purchase as an example. In the typical case, a potential homebuyer comes to the bank and proposes to purchase a particular house. The lender then buys the house and resells it to the borrower at a higher price. The borrower pays the lender in installments. The house is titled in the borrower's name from the beginning, so the lender demands high collateral to secure repayment. The lender cannot sell the mortgage to anyone else, but bears the entire risk of default. According to Dr. El Karanshawy, both borrower and lender have a vested interest in the success of the relationship, which leads to greater caution and oversight by the lender. ¶3. (C) According to Dr. El Karanshawy, the West should seriously consider adopting a financial system based upon Islamic principles. He noted that elements in the West might be deterred by the term "Islamic," but they should nevertheless be encouraged to view the principles of Islamic banking as legitimate and prudent, independent of the Islamic moniker. He predicted that the West will eventually take a harder look at these principles, and that there will be growth opportunities for Islamic banks in the future as a result. ¶4. (C) As if to verify El Karanshawy's predictions, Abdulbasit Al-Shaibei, General Manager of the Qatar International Islamic Bank (QIIB),told Poloff on November 16 that he had just returned from Sudan, where his bank is exploring investment opportunities. He pointed out that the QIIB had subsidiaries in Syria and Pakistan, as well as substantial investments in banks in the United Kingdom, Pakistan, and Yemen. He indicated that the QIIB was considering an expansion of all these operations. ¶5. (C) Al Shaibei stated that the QIIB had given close DOHA 00000818 002 OF 002 consideration to entering the U.S. market, and had held informal discussions with members of the Federal Reserve Board last year. The recent financial turmoil in the U.S. and the expected economic downturn had dampened QIIB's enthusiasm for this venture, but management hoped to revisit it when the situation stabilized. ¶6. (C) Al Shaibei praised the Islamic system of banking as prudent, and credited it with sparing Qatar from much of the recent global financial turmoil. He estimated that from 30 to 50 percent of all financial transactions in the country are managed according to Islamic principles, and predicted that this share will grow. He also believed that the West will come to see the wisdom of such financial practices, and that Islamic banking will expand beyond the Muslim world. LeBaron