Asian Jewels in the crown?

Could the credit crunch prove to be a boon for Islamic banking - and for Asian entrepreneurs?

by
Last Updated: 31 Aug 2010

It’s been another rotten week for our big banks, whose struggles continue despite the best efforts of governments. But according to accountants BDO Stoy Hayward, their woes could provide an opportunity for Islamic banks. Since they’ve generally been much more conservative (for which read: much less leveraged) than their conventional Western counterparts, they’ve been less affected by the problems in the credit markets – which could make them a much better bet both for investors seeking stable returns, and for entrepreneurs on the hunt for financing…

Indeed, BDO’s head of banking Dan Taylor reckons these two factors – reliable investment products and conservative financing – could lead to a huge growth in Islamic banking. Already, 20 of the big banks operating in the UK have Islamic finance units, and Taylor thinks the number of stand-alone banks (currently at five) will also increase. ‘In light of the market turmoil, we could expect the number of stand-alone Islamic financial institutions present in the UK to double over the next three years,’ he says.

One bank that’s already recognised this is Lloyds TSB, which this week held its latest Southern Jewel awards to reward (and network with) the cream of UK Asian business talent. Five years ago the bank established a specific Asian markets division: run by 29-year company veteran Kamel Hothi (who was once TSB’s first ever Asian bank manager), the division offers Islamic finance products like mortgages, bonds and current accounts.

However, its broader aim was to help the bank do a better job of engaging with this potentially huge market. And this wasn’t just about specific products – it was about every aspect of its interaction with Asian customers (for instance, it eventually led to a much greater emphasis on face-to-face contact). ‘We needed to understand the ethics and the cultural differences of the Asian community to enable us to reach out,’ Hoshi tells MT. Equally, the bank needed to help Asian businesses get a better understanding of how to go about securing finance – business plans, formal management structures and so on.

All this interest reflects the fact that there’s a big opportunity to sell banking services here. According to the DTI, the UK’s 200,000 Asian businesses grew three times faster than the national average last year. And Hoshi believes that (in very general terms) Asian businesses are more likely to save and less likely to borrow – so to some extent they’ve insulated themselves from the effects of the credit crunch. She also suggests that many of the new generation of Asian entrepreneurs have inherited the immigrant work ethic from their parents and grandparents, but are much better educated – apparently 38% of graduates are Indian, despite the fact they only make up 4% of the population, which shows how highly education is valued within the community.

So if anyone is going to thrive in the tough months ahead, it could be them...


In today's bulletin:
RBS humbled in massive state bail-out
Mission Impossible for Iceland?
Editor's blog: Green shoots of recovery for Baugur
MT's Little Ray of Sunshine: Herd mentality at DEFRA
Asian Jewels in the crown?

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