Islamic banks an inroad for exporters
Muslim institutions could be key part of Czech export strategy
Posted: June 6, 2012
As the government looks to wean domestic companies off their dependence on exports to struggling eurozone countries, the new strategy looks east to high-growth, high-volume markets in developing nations.
It's a plan that has been widely criticized by small business leaders as too risky, and banks aren't exactly lining up to finance dicey ventures, but a group of Islamic banking experts who convened recently for a conference at the Czech National Bank say Islamic banking can help Czech exporters crack new markets in predominantly Islamic countries.
Unlike Western commercial banks, Islamic banking practices must be consistent with Islamic law, which forbids charging interest, funding speculative investments and investing in companies whose activities run counter to Islamic teachings like alcohol or gambling outfits.
Despite the religious restrictions, many companies could benefit from cooperation with Islamic banks when entering new markets in Muslim countries, according to conference panelist and Islamic banking expert Harun Ergünes of Turkey.
January-March 2012 (in millions of Kč)
Source: Czech Statistical Office
"If a Czech company goes to a Muslim country and his business partner doesn't have enough money to buy his goods, then the Islamic bank could help to provide funding on the buyer side," Ergünes said.
Recent efforts to diversify the basket of countries buying Czech exports have included projects in Turkey, Iraq, Kazakhstan, Pakistan and other predominantly Muslim countries.
Local companies have increasingly begun testing the waters in these countries, and business delegations traveling to largely Muslim countries are now a regular occurrence.
Currently, more than 80 percent of all Czech exports are destined for Europe, but as eurozone economies continue their slog through economic uncertainty, demand is weaker.
The government's new export strategy unveiled in February looks to boost exports to countries outside the European Union 25 percent, and 50 percent for small and midsize enterprises.
Despite enthusiasm on the government side to see companies enter new markets, the public mechanisms in place to support risky export ventures have had difficulties.
The Czech Export Guarantee and Insurance Company (EGAP), which helps companies get capital and insurance for investments outside the EU, posted a loss of 1.05 billion Kč ($50.9 million/40.8 million euros) in 2011, compared with a profit of 377 million Kč made in 2010. Last year, the insurer covered export loans and other investments abroad totaling 53.1 billion Kč. About half of the insured exports were headed for Russia.
The Czech Export Bank provides similar support to businesses, but bank officials have said increased participation from the commercial banking sector is needed.
European commercial banks seem to be as risk-averse as ever now, possibly opening up space for Islamic banks that know the local business culture where Czechs are looking to invest. Raed H. Charafeddine, first vice-governor of the Central Bank of Lebanon, said Islamic banks can be ideal partners for some investments because business loans are among their core business due to their central principles that preclude speculation.
"The basic principle of Islamic banking is that any loan that is extended has to go to the real economy," Charafeddine said. "In the financial crisis, the Islamic banks were less impacted than other banks because they were less risky."
Emily Thompson can be reached at