Standards, low profit hamper Islamic banks

The Islamic banking industry is being hampered by low profits and “mediocre” customer satisfaction despite impressive growth, officials and financial executives say at a financial conference in Bahrain.

The sector, which provides banking services compliant with Islamic sharia law, has doubled in size over the past four years and is now worth more than $US2 trillion ($A2.16 trillion).

But a study by EY (formerly Ernst & Young) released at the World Islamic Banking Conference in Bahrain this week found that Islamic banks run at significantly lower profit margins than their conventional peers.

The study, conducted on Islamic banks in nine countries including Saudi Arabia, Malaysia and Kuwait, found that their return on equity was 19 per cent lower than traditional banks in the same markets.

This could cost shareholders billions of dollars in forgone profit, it said…

You mean Islamic finance is not going to replace capitalism after all?