Islamic finance, now more than a quarter of a century old, has become a global business that is rapidly expanding into new markets and products. Gamal Essam El-Din reports from Kuala Lumpur, Malaysia Islamic finance services have recently come of age. More than 200 financial institutions with deposits estimated at $200-$300 billion now operate in 23 countries. And bankers estimate that the market is growing by at least 15 per cent a year. According to Ahmed Mohamed Ali, president of the Saudi-based Islamic Development Bank (IDB), three factors have led to the growth of the Islamic financial services industry throughout the world in recent years. For starters, Islamic finance appeals to Muslim customers because the banks appoint a Sharia (Islamic Law) board which ensures that all activities are conducted in line with Islamic religious principles, said Ali, addressing IDB's 30th annual meeting in Malaysia's capital Kuala Lumpur late last month. A second factor, according to Ali, is that rich investors -- especially in the Arab oil-gulf countries -- decided in the last four years (or in the period immediately following the 11 September terrorist attacks in the US) to change their strategies significantly. "Over the last 30 years," said Ali, "oil-rich Arab and Muslim governments and wealthy individuals have invested billions of dollars in Western Europe and US markets, with their focus on obtaining maximum return on investment." Now, he added, with low returns on dollar deposits and the post- 11 September political mood in the US, Middle Eastern investors began to look for a safe and lucrative home. IDB figures show that the number of Islamic banks in the world has reached over 265, with a market capitalisation in excess of US$13 billion. Total assets are estimated at over $262 billion, with financial investments above $US200 billion. In general, explained Ali, Islamic finance services include commercial and merchant banking, leasing activities, insurance services, securities, asset management, derivatives, corporate finance, underwriting and other related services. The role of IDB in boosting Islamic finance services has been the third -- and most -- significant factor behind the tremendous growth in the industry. During the period 23-24, IDB held its 30th annual board of governors meeting in Putrajaya (the administrative capital of Malaysia south of Kuala Lumpur) to review the future of Islamic banking and trade. IDB's president said the development of the Islamic financial services industry is one of the bank's three key objectives, with the other two being poverty-eradication and promotion of economic cooperation among IDB member countries. Ali argued that a dynamic Islamic financial services industry can be the most effective vehicle for fulfillment of IDB's other two strategic goals. On the sidelines of the IDB meeting which drew representatives from 54 member countries, including Egypt, Malaysian Prime Minister Abdallah Badawi opened a seminar on a 10-year master plan for the Islamic financial services industry. According to Badawi, the plan will cover four broad aspects of Islamic finance: banking takaful (Islamic insurance), capital market as well as Islamic financial architecture and infrastructure. In addition to the master plan, Badawi explained that since 2000, Malaysia has been the driving force behind several initiatives at the global level to boost Islamic finance. On top of these, Badawi explained, are the establishment of the Islamic Financial Services Board (IFSB), the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), and International Islamic Financial Market (IIFM). "These initiatives, together with the IBD and the Organisation of Islamic Conference (OIC)," said Badawi, "have largely accelerated the development of Islamic finance in the world and strengthened solidarity and cooperation among Muslim nations." Badawi urged that the IDB play a leading role in the next period to integrate Islamic finance services into the global financial system and markets. "Islamic banking," stated Badawi, "should be universally accepted just as Islam itself is a universal religion." As a matter of fact, Malaysia and Bahrain have been the most active Islamic finance markets in the world. According to governor of Negara Bank (or the central bank of Malaysia) Zeti Akhtar Aziz, since 2000, the Islamic banking industry in Malaysia has been growing at an average rate of 19 per cent per year in terms of assets. At the end of 2004, total assets of the Islamic banking system stood at RM94.6 billion (3.8 Malaysian ringget = one US dollar) or 10.5 per cent of the total assets in the entire banking system. Aziz added that despite post-11 September allegations that Islamic banks are being used to fund terrorism, Islamic banking has become popular even with non-Muslim customers. He noted that leading Western banks such as HSBC, Citibank, BNP Paribas, and Deutsche Bank are now increasingly involved in the provision of Islamic services complying with Islamic Sharia. Aziz stated that the central bank of Malaysia will set up a $53 million endowment fund to support the role of Sharia scholars for developing Islamic finance. Although Egypt is one of the most populous Muslim nations (72 million), it only has a few Islamic banks, all operating on the margins of the state-dominated banking system. Fayqa El-Rifaie, an appointed MP and a former deputy governor of the Central Bank of Egypt, told Al-Ahram Weekly that the government has always preferred that Islamic finance services be provided more by giant public sector banks than by full-fledged Islamic banks. The reason, explained El-Rifaie, is that "the financial disaster brought about by the so-called Islamic money investment companies in the eighties has made the government very cautious in licensing Islamic banks in Egypt." Egypt, however, is an active member of IDB, IFSB and AAOIF. It has benefited largely from IDB finance of development projects. In IDB's last meeting in Malaysia, Egypt, represented by the deputy governor of the Central Bank, endorsed 20 resolutions aimed at strengthening Islamic banking. Foremost among these resolutions is the establishment of the International Islamic Trade Financing Corporation (IITFC) to promote trade among OIC countries. It should be noted that Egypt was a founding member of the OIC. Badawi said the proposed trade corporation will have authorised capital of US$3 billion. It was also decided that a special commission will be created to chart a "Vision 2020" for IDB, which will encompass the economies, the governance and social agendas, as well as the future development needs in OIC countries. Since its inception, the IDB has disbursed US$34.2 billion for 4,400 projects in the Islamic world, of which 61 per cent were for trade finance, 29 per cent for project finance and the rest for technical assistance. The commission will be headed by former Prime Minister of Malaysia Mahathir Mohamed. IDB's most important resolution, however, was its emphasis that the Islamic finance tool of sukuk (or Islamic short- term, liquid, asset-backed and tradable treasury bonds) be increasingly adopted by Islamic countries in raising finance for development projects. Rather than resorting to such Western finance tools like eurobonds, sukuk is an Islamic finance tool alternative. IDB figures expect that the sukuk market will reach $7-10 billion by next year.