Moves to establish a local Islamic bank face hurdles

Korea is hoping to attract funds from oil-rich Middle East countries by setting up a local Islamic bank in the country, but the effort is still facing many challenges.

The Islamic Bank Korea Organizing Committee was established in January 2009 under the auspices of the League of Arab States Chamber of Commerce in Korea.

The group is being led by Rhee Dong-wook, a Muslim convert, and Lee Tong-ho, a former president of Korea Development Bank. Their plans call for opening an Islamic bank, tentatively called Al Amir Bank.

Al Amir Bank would be based on the principles of Islamic Shariah law, which bans charging interest on financial transactions.

But the committee has had problems finding Islamic investors, preferably from the Gulf region.

“Qatar Islamic Bank was one of the Islamic banks that was interested in entering the Korean market, but it eventually withdrew its plan as it faced challenges in dealing with the domestic banking laws,” said Lee.

He noted that local banking laws make it difficult for Islamic banks to establish a foothold in Korea because they are at variance with Islamic financial principles.

“The type of Islamic bank that the committee is seeking to establish is still undecided,” Lee Jong-won, head of Sharia Finance, a local investment consulting firm specializing in attracting Islamic funds in Korea, told the JoongAng Daily.

“Most likely it will be one that would be established with the help of a foreign Islamic bank,” he said.

One problem Korea is confronting is that one of the most prominent banks from the Middle East in operation here is Iran’s Bank Mellat, whose operations were recently suspended as part of Korea’s sanctions against Iran for its suspected nuclear weapons program.

In addition, Korea has yet to approve proposed tax changes for the issuance of Islamic Sukuk bonds by Korean companies due to opposition from local Christian groups, which could create the impression that Korea is hostile to Muslims.

Local financial officials say the government must resolve the issue to improve Korea’s image as a country that wants to attract funds from the Middle East.

By Jung Jae-yoon [jyj222@joongang.co.kr]