Islamic banking in the Asia-Pacific region is expanding at a rate only second to the Middle East, according to a report by Celent.
The 'Rise of Islamic Banking in the Asia-Pacific Region' report found Islamic banking assets currently account for approximately US $450bn, representing 60% of global Islamic banking assets.
Over one billion Muslims live in the Asia-Pacific region, making it a potential hub for Islamic banking, it said.
The top 100 Islamic banks grew by nearly 27% in the fiscal year 2007 reaching $350bn in assets, overtaking the top 100 conventional banks' growth rate of 19.7% during the same period.
Pakistan, Bangladesh and Indonesia have 'good potential' for Islamic banking, according to the report.
Despite the majority of the population being Muslim in all three countries, only 4% of Pakistan's banking system is Shari'ah compliant.
The report also found India is another promising country for Islamic banking, as it currently operates in the form of non-banking financial corporations.
At present, Iran is the largest Islamic banking market, holding just over half of global Islamic banking assets. Its entire banking system is Shari'ah compliant.
Growing at a compound annual growth rate of 30% with $376bn assets at the end of 2007, Iran has reached a maturity phase in terms of scope for entrants and product offerings, said the report.
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