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'Mismatch noted between Islamic financial products, services demand and fulfilment'

National Commercial Bank (NCB) was the platinum sponsor of the conference, with Saudi British Bank (SABB) and Bank AlJazira as golden sponsors. Deutsche Bank, Saudi Hollandi Bank and Abu Dhabi Islamic Bank were among its silver sponsors.

Ammar Shata, CEO, Al Khabeer Financial Advisors, said that despite the region's immense potential, opportunities remained unexplored because of the absence of appropriate mechanisms that could efficiently channel funds from investors to entrepreneurs. This deficiency can be attributed mainly to an underdeveloped financial market structure and dearth of locally available knowledge of advanced financial structures and products. "This is further accentuated as the region's population is not comfortable with financial products transplanted directly from the West," he added.

"We recognised the enormous gap that lies between the demand for Islamic financial products and services and its fulfillment. On the one hand, the conventional finance players are struggling to keep pace with the breathtaking advancement in modern finance and investments and, on the other hand, develop a thorough understanding of Shariah," he explained.

Speaking on 'investment banking from the Shariah perspective,' Dr. Yasin A. Jefri, an economist, said that 60 per cent of Saudi citizens have been investors for over 20 years. "Investment climate in any country depends on its political and economic stability. The Kingdom in particular has an exceptionally stable economy, especially since 9/11, 2001, with American and other Western investments returning home. That's why local investors have chosen to take to Islamic investment," Jefri said.

He added that it was the growing demand for Islamic investment that gave rise to Islamic banking products. "There was also growing concentration on the part of Islamic scholars on such products. Even foreign banks, and non-Islamic ones, started seeing advantages in Islamic banking products. Islamic products are Shariah compliant, but the compliance is not enough, not satisfying," Jefri said.

Razi Shafik Fakih, acting CEO, HSBC-Amanah, London, said that there had been an increasing investor preference for Shariah-compliant products, especially in the GCC countries and Malaysia. Currently, there are more than 250 Shariah-compliant mutual funds together valued $300 billion in assets, with Malaysia alone accounting for a growth from 7 to 71 Islamic investment funds between 1995 and 2004.

He suggested that new funds should be developed on "customer insights" rather than replicating the latest 'hot trend' in conventional funds. "This will allow for an appeal to a larger target market including conventional investors, lower expense ratios and better investment results," he said.

"Standardisation of Shariah rules is imperative to increase the scope of investment funds and enhance the investor base to provide size and critical mass," he said. He wanted simpler, robust funds to be developed so that investors could make smart choices of exchange-traded funds and life cycle funds. Education of the stakeholders is necessary for the growth of the industry, whether investors or sales force, he said

Moderating a discussion on 'investment banking: Opportunities and challenges,' Taha A. Al Kuwaiz, member of the Shoura Council, said that many investors are dazed and confused. "Lots of changes taking place at the retail level and factors causing them should be examined," he said, and that demographic, political, economic and investment factors were influencing the changes.

Dr. Amr I. Rajab member of the Shoura Council, who moderated the panel discussion, said that many banks have changed to Islamic banking, but they say the derivatives have high risk factors.