Islamic banking and finance set to grow in Asia

SINGAPORE, July 5, 2007 (AFP) – Islamic banking and finance is likely to continue growing in the Asia Pacific region but the real test of its sustainability will be how the system reacts to a major financial crisis, a report said Thursday. The industry is set to develop its own identity separate from conventional banking as new Islamic financial products are rolled out, said the report by Financial Insights, a company under market research and analysis firm International Data Corp (IDC).

“The future for Islamic banking and finance in Asia looks bright and continued support by government authorities should ensure this future is grounded in strong, sensible regulation,” said Financial Insights analyst Abhishek Kumar.

He noted, however, that the industry’s growth in recent years has occurred during a period of economic expansion, and there are concerns over how it would perform during a major financial crisis.

“How the system handles a major financial crisis or recession will be the true test of its sustainability,” Kumar said.

Conventional banking systems in several Asian countries crumbled during a financial crisis in 1997, exposing the industry’s weaknesses and excesses. They have since recovered.

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