Jeddah is home to the National Commercial Bank, the first bank founded in Saudi Arabia and the biggest bank by assets in the Arab world. The city also serves as a strategic base for various leading Sharia-compliant private wealth management companies.
The importance of Islamic banking products in Saudi Arabia cannot be understated. The Koran forbids the charging or paying of interest and prohibits investing in certain industries considered to be contrary to Islam’s principles, which include the production and trading of alcohol and pork, as well as gambling.
Sharia-compliant banking makes use of profit sharing, joint ventures and leasing to provide banking services that are compatible with Islam. For example, the Sharia-compliant version of a mortgage would have the bank purchase a house and then sell it to the homeowner at a higher price. The homeowner would then be allowed live in the house while he pays for it in instalments.
To give an indication of the importance of the Islamic banking market in Saudi Arabia, close to 98 per cent of all personal financing in the country today makes use of Sharia-compliant products and two-thirds of corporate finance uses the products. The total amount of assets in Islamic banking products here could well exceed $100 billion (£62.7 billion).
ALMOST 98 PER CENT OF PERSONAL FINANCING AND TWO-THIRDS OF CORPORATE FINANCE USE SHARIA-COMPLIANT PRODUCTS
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That figure will surely grow this year, according to Mohammed Al Jasser, chief of the Saudi Arabian Monetary Agency. The country’s banks are strong and fully capable of meeting the more stringent reserve rules set by the Basel Committee on Banking Supervision, he recently said.
Steady economic growth will help boost banking activity. Saudi Arabia’s economy was set to register growth of around 3.8 per cent for 2010, Mr Al Jasser said in September, helped by heavy government spending on transportation infrastructure, schools and the military. The $400 billion investment programme is scheduled to be spread out through to the end of 2013 and so will continue to spur growth.
The most important international financial institution in the city is the Islamic Development Bank, or IDB. The bank was founded in 1973 by the first gathering of finance ministers of the Organisation of the Islamic Conference and it began operations two years later, in 1975.
The IDB is a development bank whose goal is to promote economic development and social progress in the countries that are members, which include Saudi Arabia, Egypt, Turkey, Kuwait, the United Arab Emirates, Libya and Indonesia.
IDB’s president, Dr Ahmad Mohamed Ali, who has been in charge of the bank since its founding, and his multinational staff oversee financing for endeavours ranging from giant infrastructure projects to small, private-sector businesses from the bank’s 21-storey tower in the centre of Jeddah.
The bank started out with 22 member countries, a figure that has now risen to include 56 members from Africa, Asia, Europe and Latin America. IDB’s authorised capital has risen to $44 billion and its reputation for solid management and investing has earned it a AAA rating from international ratings agencies.
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