Waraich, currently in Indonesia, the percentage of Non Performing Loans (NPL) between Conventional Banks and Islamic/Syariah Banks are about in similar level. In Fact in some area the average of Syariah Banks NPL is slighly higher than conven banks. Also the Syariah banks fails to delivered better loan-credit price/costs, thus many potential customers go to conven banks when they decided to get new credit or mortgage. This is just show that what's the matter in here not between conventional or islamic banks, but it's more on credit/risk prudence. When you can show you're operating in highly Risk Managed oprations, the result will be same wheter you are operating Syaria or Conventional banking..
Remember Greed can happen in both institutions..
I dont agree with you,please read below article
http://www.usnews.com/articles/news...ng-in-a-time-of-economic-crisis.html?PageNr=2
The Rise of Islamic Banking in a Time of Economic Crisis
How some financial institutions avoid trouble by following the strict rules of the Koran
By Thomas K. Grose
Posted December 10, 2008
Shopping for a business loan during a global credit crisis is tough work even if you're a fast-growing start-up like Ireland's Blue Ocean Wireless. And the scrutiny can cut both ways. Blue Ocean, which supplies wireless communications for merchant shipping, was giving a closer-than-normal look at whether possible lenders could be counted on amid the ongoing financial shakeout.
People walk past the first Islamic Bank of Britain in London, England.
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When the company got a $25 million loan this fall, it came from what might seem an unusual source: the Bank of London and the Middle East, or BLME, which strictly follows Islamic sharia law rather than conventional western banking practices. Islamic banking requires transactions be structured in alternative ways since the rules ban interest and trading in debt. Blue Ocean is one of many European companies benefiting from a surge in Islamic financing that's pushing sharia-compliant banking into the mainstream and extending its appeal to non-Muslims. The sector's growth comes at a time when the western banking system is caught in a liquidity crisis. Blue Ocean took comfort in the fact that BLME draws on the petrodollar surpluses of Persian Gulf oil producers. "The liquidity was there," says Blue Ocean's chief financial officer, Tariq Aslam.
The boom in Islamic banking is providing a crescent-shaped sliver of good news for the City, London's beleaguered financial district. It's fast becoming the main hub of Islamic banking outside the Middle East, a development encouraged by Britain's Labor government, which laid out the welcome mat to sharia-compliant banks several years ago. "The government sees it as another way to draw business to London, to bring investors to the U.K.," says Duncan McKenzie, director of economics at International Financial Services London.
Growth field. London now is home to 25 companies offering some form of Islamic financing. BLME is the largest of five wholly sharia-compliant banks operating in Britain. The first, the Islamic Bank of Britain, opened in 2004, and the number is expected to double within five years. Moreover, most of Britain's conventional banks also have established "Islamic windows," units that offer sharia-compliant products. Globally, the sector's total assets are pegged at between $500 billion and $1 trillion and growing at a rate of 10 to 15 percent a year.
Certainly, business is brisk at Kuwaiti-owned BLME, which is somewhat ironic, given that it opened its doors in July 2007, on the eve of the banking crisis. It is just completing a big leasing project for a major transportation company, and other deals it has sealed this year include financing for apartment buildings and a language school in London. It also provided an $11 million loan to RecovCo, a British aluminum reprocessor that is expanding its operations in France. For the first six months of this year, BLME reported pretax profits of $2.7 million and its assets more than doubled, to $931 million.
The basic concepts of Islamic banking go back 1,400 years, but the world's first modern Islamic bank didn't open until 1975. And the sector didn't really blossom until five years ago, when it was buoyed by rising oil prices and the strengthening economies of Asia's Muslim countries. Sharia law prohibits investing in certain industries or products, including alcohol, tobacco, pork, and pornography. The Koran also forbids usury, so financial transactions are structured to rely on income in the form of rents or profits from the loan, technically not interest. Sukuks, for instance, are a type of Islamic bond backed by ownership of a tangible asset that produces a financial return. Another popular instrument is the commodity murabaha, essentially cost-plus financing, which involves the sale and repurchase of a commodity to fund a loan.
The financing BLME arranged for Blue Ocean, for example, was a commodity murabaha. Here's how it worked: The amount of the first portion that Blue Ocean wanted from its $25 million loan arrangement was relatively small. So an appropriate, low-cost commodity was selected to accommodate the transaction, in this case special high-grade zinc. The bank purchased the commodity—an amount equal to the cash Blue Ocean wanted to withdraw—then sold it at a small profit to the company for the same price on a deferred payment basis. Blue Ocean, with the bank's assistance, then resold the metal at the original purchase price, thus raising the cash it wanted. All transactions occurred nearly simultaneously so that the deal wasn't whipsawed by market price fluctuations
Conservative approach. Islamic banks have avoided the subprime fiasco. "There are no toxic assets," says Natalie Schoon, BLME's head of product development. "As a result, there are no problems with big write-offs. One of the advantages that the Islamic sector has as a whole is that there is still liquidity." That, as well as the conservative nature of its business model, is a big reason that it's attracting more non-Muslim clients. Middle Eastern investors have amassed so many petrodollars they have no choice but to look for opportunities beyond the Persian Gulf region, particularly in the politically stable environments of the United Kingdom and Europe. That's why Islamic banks are setting up operations there. Also, London is attracting those outposts because of Britain's historical links to the region and the strong financial talent pool to draw on. In fact, most of the top executives at the Islamic banks in London are British or European, and they are old hands in City banking. The government's concerted wooing efforts have also helped. "The government is actually supporting Islamic finance," Schoon says. "It's not seen as a threat; it's seen as an opportunity."
As with traditional banks, the Islamic banks in London must meet levels of transparency sometimes lacking in other parts of the world. "Regulation is important," Schoon explains. "Investors like the fact that you are regulated." The London Stock Exchange began listing sukuks this year, and 18 are now trading there, a useful increase of liquidity. The British government, as early as next year, is expected to make the country the first in the West to issue its own sovereign sukuks to raise as much as $3 billion. That should help set a benchmark price and encourage more banks to issue the bonds.
The government's sukuks, which would be the first in the world to be triple-A rated, would also give the United Kingdom an alternative route to raise money from the oil-rich Middle East. The plan is not without critics, however, who claim the government is giving religious-based sharia law official standing. Critics also raise concerns that sukuks could be used to finance terrorism. But Rodney Wilson, an expert on Islamic finance at Durham University, says that's an unlikely scenario. "Most Gulf banks do have fairly sophisticated monitoring systems in place" to ferret out money-laundering, terrorism, or other abuses, Wilson says. The 9/11 terrorists, he notes, used western banks to finance their operations.
A more practical problem is a lack of product standardization. Sharia-compliant financing relies on Islamic scholars to determine if products are in accordance with the Koran. But definitions of what is acceptable can vary greatly, not only from region to region but from bank to bank. Typically, Malaysian scholars tend to offer more flexible interpretations of sharia law than do their counterparts in the Gulf. Each bank has its own board of scholars, and even among the London banks there's no uniformity. Schoon says she's seen deals arranged by rival London banks that BLME's board—which comprises two scholars from the Gulf and two from Asia—would have vetoed.
BLME's toxic-free balance sheet helped convince Blue Ocean's board that, despite being a new bank, it was fundamentally strong. The company also liked the "shared-risk, shared-reward" ethos of Islamic banking, Aslam says. Essentially, each is making a vote of confidence in the other. If they're both right, that bodes well not only for the future of BLME but for the continued growth of Islamic banking in London. And that should give City burghers at least one thing to smile about.
