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EDITIONS
Monday, 12 August, 2002, 11:40 GMT 12:40 UK
Bahrain starts Islamic financial market
Bahrain's capital Manama
Bahrain is boosting its position as the Gulf's financial hub
An international Islamic financial market dealing in products that comply with Sharia law has been set-up in Bahrain, the Gulf's regional financial and banking hub.

Since 11 September, there has been a Western backlash against the Islamic financial system, which was accused of funding terrorists and how faces heightened scrutiny.

Bahrain signed an agreement in November with Malaysia, Indonesia, Sudan and the Saudi-based Islamic Development Bank (IDB) to create the International Islamic Financial Market (IIFM).

Islamic banking serves about 1.2 billion Muslims and is valued at $180bn.

Sharia banking

Islamic banks deliver products which do not invest in conventional financial services because interest, the basis of Western banking, is regarded by Muslims as usury.

Investing in industries with links to alcohol, gambling, tobacco, weapons or pork-related products amongst others are also banned.

But Islamic fund management was boosted by a fatwa, or religious ruling, in the mid-1990s that investment in equities did not violate Sharia principles.

The IIFM will create the financial instruments and maintain an active market for about 200 Islamic banks and financial institutions around the world.

The instruments will be endorsed by the IIFM's Islamic Sharia committee.

Western offering

Switzerland's UBS has announced it will begin Islamic banking next month.

It joins just a handful of Western banks looking to tap this market.

Noriba Bank, a fully-owned UBS unit, said it will start up in Bahrain offering products and services compliant with Islamic Sharia law to rich individuals and institutions.

Citigroup, the world's largest financial institution already offers Islamic banking via Citi Islamic Investment Bank in Bahrain.

The tiny Gulf island is a key US ally and hosts the regional base for the US Navy's 5th Fleet.

See also:

24 Jun 02 | Business
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