Profit Shortfall Slows Shariah Bank Expansion: Islamic Finance

Islamic banks say their small scale and a lack of risk-management products makes it harder for them to compete. The average return on equity at Shariah-compliant lenders was 11.6 percent in 2011, compared with 15.3 percent at their non-Islamic counterparts. Moreover, Shariah banks had an average $17 billion of assets in 2011, less than the $65 billion for non-Islamic lenders, resulting in operating costs as a proportion of holdings that were 50 percent higher. This is due to the fact that most Islamic banks have very basic risk infrastructure and most of these institutions operate in domestic markets which are highly competitive. Therefore, growth is becoming more challenging to achieve.

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