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Islamic Banks Start Positioning in Iraq | ASHARQ AL-AWSAT English Archive 2005 -2017
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DUBAI (Reuters) – Islamic banks in the Gulf and Asia are starting to position themselves in Iraq to enable them to penetrate the relatively untouched market once the security situation improves, Boston Consulting Group said on Thursday.

“It is simply a function of the political and military situation,” Boston Consulting partner and managing director Knut Storholm told the Reuters Islamic banking and finance summit in Dubai, citing a spike in interest among banks in the Gulf and Asia.

“In the last 12 to 15 months there have been decisions made about opening representative offices in Iraq. The strategy is to be able to have established a presence in the country, so the moment the country starts to grow again you are on the ground,” Storholm said.

Boston Consulting advises financial institutions in Islamic services in the Middle East and southeast Asia.

Predominately Muslim Iraq, home to about 28 million people, offers great growth potential for an Islamic bank searching for a nascent market where retail banking products that comply with sharia law are likely to gain wide appeal.

Demand from the world’s 1.3 billion Muslims for investments that comply with their beliefs has soared and assets that comply with Islamic law are estimated at between $700 billion and $1 trillion.


Sovereign risk rather than regulation was the primary factor hindering banks from expanding in Iraq, Storholm said.

“Do you actually want to go into a country without a rating? It is about civil unrest and safety and an environment which is safe to actually do business,” he said.

The sectarian conflict and insurgency unleashed by the 2003 U.S.-led invasion have reduced sharply over the past year, but Iraqi security forces still face huge challenges as they take on policing and military operations.

Iraq held its most peaceful elections since the invasion when a provisional ballot in January passed without a major militant attack.

Still, U.S. and Iraqi officials say tensions between rival factions are likely to rise ahead of a national election later in the year.

“Iraq is going through significant change. If you are looking for a growth opportunity, Iraq has that growth opportunity,” Storholm said.

Mohammed Badi, Principal at Boston Consulting, said Islamic banks in the Gulf region are likely to be the first to venture into Iraq with wholesale products related to trade financing, while bringing in retail products later.

Around the world by 2013, some $1.1 trillion of new cash will be looking for Islamic retail vehicles, he said.

“The interest is broader, but the banks that will probably make the first move will be the Gulf banks,” Badi said.