Kangni Kpodar

Pak, Afghanistan pushing Islamic banking for growth

Islamabad —Pakistan, Afghanistan and Senegal, among the world’s 50 poorest nations, are turning to Islamic banking to spur economic growth by encouraging people to take out loans and open savings accounts. Outstanding domestic bank lending accounted for 3.5 percent of Afghanistan’s gross domestic product in 2008, 25 percent in Senegal, 27 percent in Nigeria and 46 percent in Pakistan, according to data compiled by the World Bank. The rates compare with 224 percent in the U.S. and 115 percent in Malaysia, a global hub for finance that conforms with Shariah principles.
Developing Islamic nations have shunned banking in part because of the religion’s ban on interest, limiting access to funds for project financing and stunting business growth, according to the International Monetary Fund. Governments should improve regulations, products and institutions that comply with Shariah law to accelerate the industry’s development, Patrick Imam and Kangni Kpodar, economists at the IMF, said in a telephone interview from Washington on Sept. 14.

9/11 effect on Islamic banking overstated

Patrick Imam and Kangni Kpodar note that the 9/11 attack on the US ‘had a positive impact on assets of Islamic banks, perhaps because Muslim investors, who traditionally invested in the West, were compelled to keep more money at home for fear of expropriation.

The study said that while oil prices have a positive and statistically significant impact on the diffusion of Islamic banking, the effect is likely to be asymmetric. They found that the probability for Islamic banking to develop in a given country rises with the share of the Muslim population, income per capita, and whether the country is a net exporter of oil. Trading with the Middle East and economic stability also are conducive to diffusion of Islamic banking and proximity to Malaysia and Bahrain, the two Islamic financial centers, also matters.

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