"There is demand," Ibrahim Dabdoub, chief executive officer of the National Bank of Kuwait (NBK) which plans to set up the new bank, told the Financial Times on Monday, March 31.
NBK applied for regulatory approval to set up the bank with a Saudi partner, Dabdoub said.
The Islamic institution, set to be launched before the end of year, will target investors and wealthy individuals from the Gulf region, which is currently awash with liquidity fueled by the windfall from unprecedented, sky-high oil prices.
"Switzerland is still a haven for people who want to keep money outside," Dabdoub explained.
The new bank will be the second private Islamic bank established in Switzerland.
In 2006, Faisal Private Bank opened in Geneva, becoming the first in the country to operate according to Shari`ah principles.
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic bankers and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Shari`ah-compliant banking deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Switzerland's new Islamic bank is only the latest of Shari`ah-compliant finance institutions in the West.
"At some point some of the big investment managers will set up Islamic funds, both in London and the US," said Davide Barzilai, senior associate in Islamic finance at London-based law firm Norton Rose.
Responding to local customers with Pakistani and Middle Eastern immigrants, Devon Bank in Chicago has over the years transformed itself into a specialist in no-interest Islamic financing.
Islamic financing now accounts for more than 75 percent f the bank's mortgage portfolio.
Devon, which has assets of just $250 million, has made mortgages compliant with Shari`ah in 36 US states.
In a report last month, credit-rating agency Moody's Investors Service said that the global Islamic finance market has grown about 15 percent in each of the past three years and is now worth about $700 billion worldwide.
The heavyweights of global finance, including Citigroup, HSBC, Deutsche Bank and others, have taken notice and have affiliates devoted to Islamic finance.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide.
In addition to Islamic loans and credit cards, Islamic bonds — known as sukuk — are booming.
"The sukuk market has held up fairly well," Geert Bossuyt, head of structuring for the Middle East and Africa at Deutsche Bank, told the Times.
"Deals are being done, unlike in some other markets," he noted.
Nearly $33 billion of Islamic bonds were issued last year, up from $5.5 billion in 2001.
Sukuk are already available in the US, Britain and Japan.
Other countries, like Thailand, are contemplating issuing Islamic bonds of their own.
"The Bahrain government and Khazanah, the investment arm of the Malaysian government, have both issued sukuk in recent weeks," said Arul Kandasamy, head of Islamic financing solutions at Barclays Capital in Dubai.
"The market is still open."
Source: Islam Online (English)