Ningxia to Spearhead Islamic Finance in China

By Cheng Zhiyun
Published: 2009-07-02

Market, page 20
Issue 424, June 22, 2009
Translated by Liu Peng
Original article: [Chinese]

With encouragement from the China Banking Regulatory Commission (CBRC), Ningxia Hui Autonomous Region is set to take the lead in trialling Islamic financial services in China.

If the pilot project is successful, policy makers hope that Islamic financial services will gradually become available throughout North West China.

Lu Suping, Chairman of the Bank of Ningxia's board of directors, confirmed that the regulatory bodies had given the bank preliminary approval to go ahead with an Islamic Finance trial.

History of the Islamic Finance Initative

The idea of offering Islamic financial services was first raised at the end of last year by the Ningxia Hui Autonomous Region's Peoples' Government, but according to a source from Ningxia Branch of China Banking Regulatory Commission (CBRC), "it was only after many rounds of consultation that the trial finally gained support from the relevant departments."

At the start of this year a special office was set up to undertake a feasibility study into the proposed trial. Lessons were drawn from the experience of both other countries and also Hong Kong in regard to the establishment of Islamic financial services.

The results of the feasibility study have been presented to the CBRC and Ningxia Hui Autonomous Region's party committee.

A source familiar with the matter revealed that, regulatory bodies had suggested that either a special department be established within the Bank of Ningxia or that special service windows capable of providing Islamic financial services be introduced at various branched of the bank.

"In fact, due to disagreements about the scale of the pilot project, the CBRC finally decided to select Ningxia as a trial area. However, they plan to gradually enlarge the scale of the project," the above source added.

The Islamic Finance Pilot Project

Details of how the project will proceed remain scant. According to Lu Suping, "we still haven't formulated a detailed plan, the bank's first priority is to establish a special branch, designed in an Islamic style, and capable of providing Islamic financial services to local Muslims."

She also revealed that they planned to recruit a Muslim manager to run the branch.

When questioned about the bank's ability to support the pilot project in these uncertain economic times, Chairwoman Lu noted that the Bank of Ningxia currently had 34 branches, was well-governed and has an exemplary risk control system.

"Moreover, the bank already employs 200 Hui nationality workers, 13% of the total number. Hui employees also make up 12% of the bank's management level staff," said Mrs Lu.

"These Muslim employees provide the human resources required for the pilot project," she added.

Chairwoman Lu said preparations for the pilot project would be completed before the end of this year.

However, local banking watchdog remains cautious about the pilot project and has drawn attention to some of the difficulties that lay ahead for the bank.

For instance, the scope of Islamic financial services goes beyond those laid out in the country's commercial banking law and therefore the introduction of Islamic financial services will require special permission from various departments.

Furthermore, according to Islamic financial practice, financial transactions are calculated on the basis of the transfer of real assets, which will often meet problems to do with the duplication of tax and therefore will need to apply for some kind of preferential tax policy.

Moreover, commercial banks lack experienced employees who are also familiar with Islamic doctrine.

In order to study the operation of Islamic banks, the local government, the CBRC and Bank of Ningxia have organized an inspection tour of Malaysia and the United Arab Emirates in July.

Global Vision

The EO learned that local government has dreams of turning Yinchuan, capital of Ningxia, into a Islamic financial center on the mainland.

This aim is revealed in the documents relating to the establishment of an Islamic bank in the government's working report this year.

A source from Ningxia branch of CBRC revealed, the pilot project would provide Ningxia with many opportunities to join some international Islamic financial organizations.

This raised the possibility of Ningxia establishing regional trade with these organizations and Islamic countries.

"It's possible in the future that Ningxia could introduce an Islamic investment fund or Islamic bonds to attract international Islamic investors into local economic construction," the source added.

Links and Sources
Bank of Ningxia
China Banking Regulatory Commission