HSBC Amanah, the Islamic arm of bank HSBC, plans to have 125 branches throughout the Middle East and Asia by the end of 2012 eyeing rapid growth in the $1 trillion Islamic finance industry, a top executive said.

Middle East and Asian markets will fuel growth in the industry with compounded annual growth rates of over 6 per cent in the next five years, said Razi Fakih, HSBC Amanah's deputy chief executive in an interview with Reuters on Wednesday.

Fakih added that a number of attractive markets, such as India and China, are beginning to explore Islamic finance and the company will aspire to enter those markets when the regulatory environment opens up.

'We would also like to extend into Egypt, Turkey and possibly in Oman when it's possible,' Fakih said.

The Islamic unit also plans to expand further into Bangladesh within three months.

He said the company, which has close to 100 branches in the Middle East and Asia, sees the most dramatic expansion in Malaysia. Fakih said in Malaysia, Amanah, will have 10 branches by the end of the year and targets 26 branches by mid-2012.

More standardization

The executive said central banks from Asia and the Gulf are working together to try to alleviate challenges in the Islamic finance space, including the lack of liquidity management tools and standardization.

Eleven central banks signed an agreement in October establishing the International Islamic Liquidity Management Corp. (IILM) to help Islamic financial institutions work towards an Islamic money market and manage cash if faced by a liquidity crisis.

'It's still very early but it's definitely a step in the right direction,' Fakih said. 'The industry continues to build an infrastructure and that's a positive development in the evolution of the industry.'

Fakih said HSBC Amanah is also on a committee working with global standardization body International Islamic Financial Market (IIFM) to create a standardized master agreement for wakala contracts.

Wakala is an agency agreement in which one firm accepts funds from another to invest on its behalf in a sharia-compliant manner.

'A wakala agreement is very much on the cards,' he said. 'While its never going to take away a default, a wakala agreement will standardize the documentation and allow for growth and consistency across the market.' – Reuters