Europe: 50 million potential customers, with major concentrations in Russia 27 million, France 6.1 million, Germany three million, Bosnia-Herzegovina 2.3 million, Albania 2.2 million, Serbia & Montenegro two million, the UK 1.5 million and the rest distributed across most of the European continent. The difficulty in serving these markets is the dispersion of Muslims across geographical locations. Fortunately, the majority of Muslims are typically found in urban areas. In addition there is a potential of approximately five million non-Muslim customers in these markets, who put ethics high up on their list of desirables when shopping for financial products.In the US, providing Islamic banking and financial services is made more complex than other nations because the responsibility for regulatory supervision is divided between a number of federal and 50 state agencies. The regulatory structure of the US market poses distinctly different challenges for Islamic banking such as the treatment of profit-and-loss sharing regarding deposit accounts, the types of permissible investments commercial banks can hold, and various disclosure requirements.An example is the advance disclosure of annual percentage rates to comply with the Truth in Lending Act. To limit banks from assuming unnecessary risks the US regulatory structure limits the range of investments that a commercial bank may be engaged in, which are typically fixed-income, interest-bearing securities. Although limits like these are designed primarily to limit potential losses to depositors, it creates a challenge for banks tying to comply with Shari'ah principles. However, institutions like University Islamic Financial have designed products that comply with the regulatory conditions such as profit-sharing deposits, which are insured by the Federal Deposit Insurance Corporation. Perhaps one of the most challenging issues for Islamic finance in the US is in the area of financing the purchase of a home or automobile using Murabahah or Ijarah structures, where under some state's laws the institution may be required to qualify as a licensed leasing company. The key issue is that bank supervisors must develop a new understanding of how risk is managed under the distinctive structure of an Islamic bank, so they can assess the safety and soundness of an Islamic institution in a way that fairly evaluates the Islamic approach they take in matters such as credit risk, investment risk, operational risk, compliance, corporate governance and capital policy. That said, US regulators are quickly learning the fundamentals of how to address these regulatory issues in ways that make Islamic banking more inclusive to their markets. The US Department of Treasury now has an Islamic scholar-in-residence to specifically address issues thrown up by Islamic banking.However, providing Shari'ah compliant services the US is not new, as organisations such as Saturna Capital Corporation entered the market way back in 1986 with the Amana Income fund and in 1994 with the Amana Growth fund. Saturna Capital with $250 million under management now has operations in Washington State, Virginia and New York. Perhaps one key issue in non-Muslim markets is the attraction of Islamic banking and finance to non-Muslims, who are beginning to equate the compliance with Shari'ah principles as the same as ethical and socially responsible investing. Interestingly, the most compatible customers and investors are devout Christians who seek alternative investments that are free from supporting industries such as alcohol, pornography, and gambling. A brief examination of the Ave Maria Catholic Values fund finds many of the underlying investment principles and objectives are strikingly similar to that of Islamic alternatives.Some key developments of non-Middle Eastern banks in terms of Islamic banking in 2006 include in the UK with Lloyds TSB's Shari'ah' compliant banking service for Muslims; Deutsche Bank's Islamic window and Sukuk securities; Dow Jones and Citigroup's launch of the Dow Jones Citigroup Sukuk index and the UK's Islamic Bank of Britain's opening of a new branch in Birmingham. The increase in offerings of Islamic banking in non-Muslim countries and the profits so far shown by these endeavours reveals that banks are rightly enthusiastic to enter this new-found market in the next few years. Joseph Divanna is the managing director of Maris Strategies, a financial services, global business and innovation think tank.
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