TOKYO — Japan is planning to introduce Shari`ah-compliant dealings into its beefy banking system in a bid to attract lucrative Middle Eastern oil money, a Japanese newspaper said on Sunday, June 18.

The government-backed Japan Bank for International Cooperation (JBIC) has formed a four-man advisory board of Islamic legal scholars from Saudi Arabia, Malaysia and Pakistan, the Nihon Keizai Shimbun said.

JBIC will also study Islamic-style finance in a tie-up with Sumitomo Mitsui Banking Corp., Mizuho Corporate Bank and Bank of Tokyo-Mitsubishi UFJ, the business daily said, quoting sources close to the plan.

Japan Asia Investment Co has separately set up an advisory panel of Muslim scholars to confirm that the Shari`ah Asian Investment Fund it manages jointly with a US firm for Middle Eastern investors conforms to religious teachings.

Islamic banking operates by sharing profit or loss between the bank and its clients, instead of interest, which is forbidden.

Islam forbids Muslims from receiving or paying interest on loans.

Observer

The government also intends to take part as an observer in the Islamic Financial Services Board, a Malaysia-based organization set up by Muslim countries.

The aim is to help Japanese private financial institutions enter the Islamic financial market, according to the paper.

The Islamic banking industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.

There are an estimated 300 Islamic banks and financial institutions worldwide holding $300 billion in assets predicted to grow to $1 trillion by 2013.

Deposits grew by 13.7 percent per year from 1998-2003, while in the Gulf region deposit growth reached almost double that in the last few years.

The fastest growing region has been the Gulf Cooperation Council, a region seeing windfall oil revenue, with 60-70 percent of new deposits there going into Islamic banks.

Europe's giants like Britain and Germany expanded over the past three years in producing banking services and products aimed at the Muslim clients.

Britain's fifth-biggest bank, Lloyds TSB, on Wednesday, June 14, began to roll-out its Islamic financial services across the country.

British Muslims, estimated at 1.8 million, will now be able to open a Shari`ah -compliant current account in any of Lloyds' 2000 branches in England, Scotland and Wales.

Deutsche Bank, Germany's biggest bank, set up a committee in 2004 to examine to what extent its products conformed to Islamic law and hoped to create products that did so without diminishing the financial performance clients would expect