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)
.

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(C) KEY POINTS
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-- 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.

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(C) COMMENTS
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-- 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

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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