Despite past failures said Islamic finance has strong potential to become more prominent in the Canadian market
By Megan Harman
At an Islamic finance conference in Toronto on Monday, speakers commended the impressive performance of Islamic financial institutions and investment products during the financial crisis.
“Islamic banks have been more resilient,” said Shahzad Siddiqui, a Toronto-based author and lawyer with expertise in Islamic finance.
The speakers partly attributed the resilience of the sector to the fact that Islamic banking institutions – as part of their compliance with Shariah law — avoid high levels of leverage and risk, and avoid engaging in speculation. As a result, these institutions have a higher level of stability than many conventional financial firms.
Shariah-compliant investment products also avoid these riskier practices, and as a result, are often less volatile than conventional products. These stable features have helped these types of products gain popularity – among Muslim investors and non-Muslims alike – during the volatile market environment of recent years.
As an example, two Shariah-compliant mutual funds operated by Washington-based Amana Mutual Funds Trust have seen their assets under management surge in recent years to US$2.8 billion. Even though the funds are designed to be compliant with the principles of Islamic faith, only a small proportion of their investors are Muslim, according to Stephen Ranzini, president and CEO of Michigan-based University Bank, which has an Islamic banking subsidiary.
“The results were so compelling that the business found them, and so today, 90% of the customers are non-Muslim,” he said.
The panelists noted that Shariah-compliant mutual funds in Canada have not generated this level of interest, and as a result, many efforts to launch these types of products have failed. Ranzini said that in order to be successful, it’s critical for Shariah-compliant products to have appeal among the broader population – not just the Muslim population.
In addition, he noted that these types of products tend to take time to become profitable, and as a result, require very patient capital.
“You have to have the patient capital behind the product, because this is not going to turn [a profit] in a year or two, or five,” Ranzini said.
He suggested that past failures of Shariah-compliant products in the Canadian market may have resulted from firms failing to provide a sufficient period of time for the products to generate assets.
Other challenges for the Islamic finance sector in Canada include a lack of standards and regulatory oversight; and a lack of education among investors and industry members, the panelists said.
They called for the financial services industry to make Islamic finance education and training more accessible to employees.
“Education is extremely important,” said Ayse Yuce, a professor of finance at Ryerson University.
Despite these hurdles, the panelists said Islamic finance has strong potential to become more prominent in the Canadian market.
“On the retail side, with the Muslim community doubling every 10 years, we see a sizeable market,” said Omar Kalair, president and CEO of UM Financial, a Toronto-based firm specializing in Islamic finance. He expects to see a growing number of Shariah-compliant financial product offerings in the years ahead.
source : investment exe.(canada)
The question whether the Islamic finance can save the Western banks or not is highly spoken nowadays in the global economical crisis.
The rules are simple, no dealing in alchohol, pornography or anything deemed morally harmful coupled with no interest and you have the foundation for an Islamic financial system, which has been able to withstand the current economic meltdown, presenting Islamic banks with a unique opportunity to flourish.
Unlike banks in Western economies, Islamic banks have been delt less of a blow by the financial crisis and experts believe it is because the laws followed are based on those set out in Islam’s Holy book, the Quran, which for Muslims is the word of God.
No interest and risk sharing
Islamic banks do not borrow in interbank markets as their funds are from their own deposits and they do not hold toxic collateralized debt obligations. Furthermore Islamic law forbids interest and encourgaes risk sharing, which means that any investment, profit or loss, is shared by both the bank and its clients.
The fact that Islamic banks have seen minimal adverse effects from the crisis has made them more attractive to investors, especially in the Gulf Cooperation Council (GCC), who watched the value of their investments in conventional banks plummet, according to a new report, named The development of Islamic finance in the GCC, from the London School of Economics and Political Science (LSE).
“There has been much questioning of the values underpinning the conventional financial system, and the search for alternatives means that Islamic banks are likely to receive more attention, especially as their raison d’être is morality in financial transactions, based on religious teachings,” said author of the report Professor Rodney Wilson, who wrote the report for LSE’s Kuwait Programme on Development, Governance and Globalization in the Gulf States.
The demand from the world’s 1.3 billion Muslims for investments that comply with their beliefs means assets that comply with Islamic law range between $700 million and $1 trillion, with some estimates seeing assets growing to $1.6 trillion by 2012.
The value of Shariah-compliant assets in the GCC, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, amounts to more than $262 billion.
“The increasing international respect for Islamic finance has been noted in the GCC, and this should encourage local acceptance by both governments and bank customers, not least because no Islamic bank has failed in the crisis and required a substantial government bail-out,” Wilson said.
Linking the West with Shariah
Wilson said the GCC’s position in the heart of the Muslim world made the area a strategic hub that could link Islamic finance to Europe, Asia and Africa and argued the spread of subsidiaries of GCC-based Islamic banks was an indication that it was already happening.
However, regulatory differences and harmonization among different schools of thought, are just some of the main obstacles of Islamic banking as it looks to grow into a cross-border system, mainly targetting European countries with large Muslim communities.
As the industry expands into non-Muslim or secular states, the need to educate others about the sector has become greater.
In a sign that cultural barriers may be coming down, this week a London-based training program was launched by the Lord Mayor of the City of London, Ian Luder, to enable the European financial hub to better cater to the requirements of Islamic finance.
“Despite the current global financial crisis, Islamic finance continues its growth as an increasingly viable alternative banking system for both Muslims and non-Muslims. It will be a vital component of the new global financial infrastructure,” Luder said.
The program, which will be run by the Islamic Banking Finance Center U.K., was established to provide research and training for private and public organizations such as insurance companies, banks, non-financial businesses and academic institutions.
“The Islamic finance sector is expanding at an exponential rate…due to its strong financial principles and ethical values, which prohibits the charging or paying of interest and encourages mutual risk and profit sharing between parties,” Akmal Hanuk, chief executive of IBFC-U.K., said.
source : tkbb
Bankers and experts said making use of the still largely untapped resources of Islamic finance and banking is an optimal solution in light of the global economic downturn.
Islamic banking and finance proved to be the least vulnerable to losses and the least affected by the negative impact of the global financial crisis and promises major opportunities for growth, they said at the inauguration of the first Islamic Finance and Investment Forum for the Middle East, held on the eastern shores of the Dead Sea at the beginning of march.
“In this challenging global economic and financial environment, Islamic finance has remained dynamic with a steady pace of innovation and growth,” Central Bank of Jordan (CBJ) Governor Umayya Toukan said at the inauguration of the two-day forum.
“The accelerated development of the Islamic financial markets and the supporting international Islamic financial architecture as well as the trend towards greater liberalisation have enhanced the integration of Islamic finance into the international financial system,” he added.
In order for Islamic finance to truly become international, allowing its share to go beyond its present level of around 1 per cent of all global banking activities, Toukan stressed that its standards should be consistent with international benchmarks such as Basel II.
Fouad M. Alaeddin, Middle East managing partner head of markets, told The Jordan Times that Islamic banking has great potential, especially since the sector was less impacted by the crisis than the conventional banking sector.
“There is a huge potential for growth in the Islamic banking sector. It is safer as it is asset-based and does not rely on derivatives, etc… and it also takes share in the risk. In addition, the whole concept of Islamic banking goes with stricter banking regulations, which seems to be the trend after the crisis,” Alaeddin said in remarks following the inauguration of the event.
“The sector is still somewhat new as it is about 30-40 years old and is still untapped,” he added.
According to Minister of Finance Mohammad Abu Hammour, the Islamic banking sector witnesses an annual growth rate of 10-15 per cent and there are currently over 300 Islamic banks in more than 50 countries. There are also more than 250 investment funds that operate in accordance with Sharia rules, with total assets of about $850 billion.
In Jordan, there are currently two Jordanian Islamic banks with assets amounting to around 11 per cent of the total assets of the banking system, deposits with a market share of around 12.5 per cent of total bank deposits, and credit facilities accounting for around 15 per cent of total bank credit, according to Toukan.
Two new Islamic banks were recently granted licences to operate in Jordan: Jordan Dubai Islamic Bank, which started its operations in Jordan in January 2010, and Al Rajhi Bank from Saudi Arabia, which is expected to start operating in the next two months, Toukan added in his speech.
In a speech read on his behalf by the ministry’s secretary general, Abu Hammour stressed that the developments the Islamic banking sector has witnessed in the past 40 years are “pioneering” and “unprecedented” in the modern financial market.
According to Abu Hammour, experts agree that Islamic banks, when compared to conventional banks, managed to avoid the consequences of the global financial crisis that affected many countries and caused many banks to collapse.
The minister called on Islamic banks to seize the opportunity created by the crisis by creating international investment banks that provide a new vision to the world and continue development and modernisation in their services.
It is also important to foster and strengthen the Islamic financial industry to be able to maintain its growth and to utilise the money available in the Arab and the Muslim worlds, he added.
In a speech at the forum, Moussa Shehadeh, deputy chairman of the Jordan Islamic Bank board of directors, reviewed obstacles facing the Islamic banking sector and called for supporting it and taking the “special” situation of these banks into account.
In this regard, Toukan said the Islamic banks in Jordan should have special treatment in terms of monitoring and international auditing standards, adding that the CBJ is working on these aspects so the Islamic banking industry assumes a larger role in the global banking system, the Jordan News Agency, Petra, reported.
He said if the situation necessitates having special legislation for the Islamic banking industry, the CBJ is ready to look into that.
Experts from several countries are taking part in the event, where several issues of concern to Islamic banking and finance will be discussed.
source : jordan today
Joseph DiVanna, managing director of UK-based consulting and advisory firm Maris Strategies, said in this month’s issue of The Banker that Shariah-compliant banks were performing better than conventional banks.
Islamic banks focus on ethical investing; speculative financing and trading is forbidden. This makes Islamic banks highly dependent on customer deposits for their liquidity.
“This in turn makes them less susceptible to changes in credit markets,” according to DiVanna.
South Africa stands to benefit from Muslim investors who want new markets in southern Africa, which presents one of the best platforms on the continent for growth in Islamic banking products following the regulatory restrictions that were put on these products.
This could be the reason Absa Capital, the investment banking division of Absa, launched South Africa’s first Shariah-compliant equity-linked exchange traded fund (ETF) on Thursday.
The banking group said that the initial public offering for the NewFunds Shariah Top40 index ETF had opened on Monday. The ETF will be listed on the JSE on April 6.
The Shariah Top40 index ETF tracks the FTSE/JSE Shariah Top40 index, jointly established by London’s FTSE International and the JSE.
Vladimir Nedeljkovic, head of ETFs and index products at Absa Capital, said that the Shariah Top40 index ETF was a first for South Africa. It was expected to redefine the Muslim investment landscape in the country.
“This ETF is a cost-efficient, transparent and easy-to-access investment product that conforms to the principles of Shariah law,” said Nedeljkovic.
He expected the product to do well in a market that urgently required more local Islamic investment products to service the estimated 400 000 Muslim households in South Africa.
“The Shariah Top40 index ETF provides investors with diversified exposure to the broad market through investing in one Shariah-compliant ETF share and earning a market related performance,” he said.
Absa Capital’s NewGold ETF, the biggest ETF in the South African market with about R9 billion in assets, is also Shariah-compliant. It has been approved by the Shariah supervisory board.
“Islamic banks were generally not impacted by collateralised debt obligation or asset backed securities,” DiVanna said.
Since November 11, new Islamic banks had been formed, including the United Arab Emirates’ first Islamic commercial bank, the Ajman Bank.
DiVanna added that while banks in the developed world had curtailed their expansion, 23 Islamic banks had extended their operations into new countries such as Botswana, Iraq, Kenya, Malaysia, Pakistan, South Africa, Sudan and Syria.
Qatar National Bank opened a full-service branch in Singapore and the Arab Bank opened a branch, specialising in Islamic banking, in Qatar.
South Africa has been offering Islamic banking since 1989 and all big four banks are developing or offering Islamic products.
source : busrep
SOME of the features and underyling principles of Islamic finance may avoid or minimise the impact of future economic cycles, said the acting chief executive of the Centre for Islamic Banking, Finance and Management.
Makhtar Abdullah, who is a moderator for the 16th Asean Federation of Accountants Conference 2009, said, “The recent economic crisis which evolved around the financial system will further stimulate and hasten growth of Islamic finance as an alternative to the conventional system.”
He said the world is looking for alternatives in the wake of the crisis.
Now, he said, the push for Islamic banking will be faster and in bigger scale, so there will be more acceptance in the global economy.
The crisis, he said, might even be seen as an advantage for the Islamic banking sector as players were not directly affected.
Makhtar said on a global scale, education is still needed to get the knowledge and confidence across on Islamic finance.
“Everybody has to play their roles and Brunei is positively projecting the same image as after four decades of evolution, Islamic finance has a firm footing in developed markets globally,” he said.
Makhtar said the main feature of Islamic banking is that the foundation isn’t so much on liability and borrowing but more on the sharing of risks.
“It would be beneficial because customers would have a say in what they want and transactions would be more transparent as whatever business leads the financial institution wants to get involved. There will be more disclosure involved so it makes more sense to everyone,” he said.
In Brunei, Islamic finance has a good and positive image and the establishment of his group is part of the image Brunei is projecting.
“As people involved in Islamic banking work more with other global players their knowledge increases and (they) become more well trained with the proper infrastructure to accompany that,” he said.
Source : TBT
Global economic crisis is the event which outlined the framework very well, especially the profile of the leading geopolitical and geo-economic centers on the planet. The collapse of several leading financial institutions in the U.S. cause a domino effect in the adjacent to these economies. Logically, this proved to be the euro area and Japan. Recession in these economic region is stronger as their economic development is practical for the most powerful economy in the world – the U.S..
Subsequent developments in the Arab and Islamic capital market and commodity demonstrate once again that the economy has its own rules and logic. It can not prevail over politics, or at least – is not able to fight artificial economic principles. Changing the performance of Arab stock exchanges, particularly the Gulf, is in no way different from those in highly developed countries. Until now, experts reported losses exceeding 180 billion dollars in the Gulf. In net terms the largest they have in Saudi Arabia – about 150 billion, a percentage – in the United Arab Emirates. The same applies to the largest market outside the Arab Gulf area – Egypt. The value of the Egyptian national index over the past few days were reduced by about 10% per day. However, state authorities refused to take special measures, de, as all officials claimed that the Treasury has enough cash to get to the bankruptcy of the banking system.
The resulting economic events in the Arab world give reason to make some basic conclusions:
1. The economies of most developed Arab countries – those in the Gulf are very closely connected with the world and especially in the U.S. economy. In fact, they have her appendix. The accumulated revenue from the oil capital resources (several hundred billion dollars), however, is so large that whatever happens in some of the centers of the world economy, this huge mass of money can offset the impact. By calculations of experts, the depth of the crisis in the U.S. and the Gulf States is proportionate. Arab financiers have set October 6 as “black Monday” for local farms. In this day only in the Gulf “have vanished around 150 billion dollars.” U.S. lawmakers were forced to allocate 700 billion dollars to prevent the collapse of the national economy. Most likely Congress will grant a new $ 150 billion for the same needs. For countries exporting oil such measures will be needed despite the working capital of the local stock exchanges.
2. At the beginning of the crisis emerged a number of analysis and forecasts according to which the recession in the Arab world would not be significant due to the existence of so-called. “Islamic banking system. Its adepts argued that it is built on principles that create a fully independent, the global economy and the traditional banking and financial system. They constantly publish statistical data, according to Sharia finance is increasingly winning positions. Scientific forum in Paris, in 2008 it was noted that the Islamic banking system, has working capital of 800 billion dollars. It is expected that in 2010 it reached 1.4 trillion. The size of the crisis in the richest and most obviously Islamic countries such as the Gulf countries, outlined the contours of the real and true meaning of “Islamic economics”. If she has a burden, it is relatively modest and is mostly a political dimension.
It is noteworthy that the quotes for “benefits” of the Islamic economy have disappeared from the major Arab financial publications. Some of them, frankly secular in orientation, they were not even pay attention. At the same time, Islamic preachers economically manipulative note speeches on the virtues of economy system of leading European editions, “Journal des finances”. Mentions that the French Higher Council for Financial Supervision issued the license under which the country can apply Islamic principles in financial transactions on the local market. Moreover, it was reported that one of the universities of Strasbourg considered to begin training students in the subject “Islamic economy”. All these measures reflect the desire of the French authorities to attract more investment from Gulf states, and not reflect the existence of ideological or religious motives.
Arouse interest in the answer to the question of whether Paris wants to shift the position of London from the fringes of Islamic banking. So far, this system is applied by individual intitutsii in 51 countries. Understandable reasons in the first four centers are located in the Gulf – Dubai, Abu Dhabi, Manama and Doha. British capital ranked fifth in the world with a concentration of Islamic banking institutions.
translated source : teamorientbg
Although the first symptoms to overcome the acute financial crisis that engulfed the developed economies in the Muslim world, increased forecast that is the end of capitalism “. Politicians, financiers and theologians increasingly active launch of the opinion that a matter of time western economy finally yielded to a new economic model.
Liberalism will have the same fate as that of Marxism. After a compromise was found Marxism total liberal hegemony, dominates the entire world. Liberalism has lost its moral stand. Current economic earthquake is only a “financial bubble of the overall crisis. The place of liberalism will be occupied by “Islam as a factor of development, consolidation and resistance.”
Group of theologians from university Al Ahzar in Egypt are proponents of similar ideas. Naturally, they tend to theorize more than personified future Islamic paradigm. Expert theologians called to convene a meeting of specialists Global Congress of Islamic economics. According to them it is high time to define the stages of institutionalization of shariatskiya business model to give a true alternative to the current crisis.
Member of the Association “Islamic studies” Dr Sheikh Abdel Fatah claimed that functioning economic models have failed because “based on interest and sale of virtual goods, the price the buyer can not cover.” According to Islamic investment are always liquid, unlike Western “He still reinsure with the argument that if during the past days had Islamic financial institutions were also affected by the crisis, it’s happened, since they only formally identified as Islamic. Financier believes that in practice they operate with real instruments typical of Sharia.
Another economist, theologian, Sheik Youssef Badri, ensure that Islamic finance has been very accurate in their predictions. Years ago, they analyzed the largest recession in the U.S. than 20 years of last century and predicted that after 90 years, capitalism will collapse. ” Adopting the current crisis as “the beginning of the end”, Badri noted that the process has even begun two years earlier. At the same time the expert makes sharp criticism against the “oil states”. The latter have been warned that using too many “traditional” and not Islamic, financial rules. Thus they have become the victim of a bank shot.
Specialist in economics Mahdud Zauaui the pages of Saudi website, Al mufakirat al-Islam raises the question: “When will come the Islamic alternative?” He remains cautious in its forecast. The researcher describes the ideal Islamic version, in which state coercion is eliminated on human labor, characteristic of communist economic paradigm. Zauaui noted that economic communism removes personal initiative and thus maintain low labor productivity. At the same time, adepts of the economy off shariatskata total withdrawal of the state, because then “the greed of the business will rob labor of the producers.” He calls for a model, whose prototype was the Bank of the poor “Bangladeshi finasist of Younes Mahmoud, received the Nobel Peace Prize in 2006
The latter was rated so highly by the committee in Oslo for providing, for years, a low-interest loans to their poorer compatriots. Thanks to this economist from Bangladesh has created and supported many small business owners, ensuring their integrity existence. Questions that did not meet Zauaui, gave Mahmoud has been able to refinance its bank capital only through interest from loans or just had correspondent accounts at institutions with many more working capital. The latter are usually outside the Islamic economic zone. Sometimes there are significant dividends received from deposits made.
On the other hand it is good to consider why the banker from Bangladesh has been awarded the most prestigious award for his contribution to peace and not in the field of economics. His work deserves admiration for his generous sponsorship through which he has saved thousands of his starving countrymen. It can however be argued that creates Mahmoud stranger to global finance to date, economic model.
Advertised by business experts Islamic alternative is a hybrid of socialliberalizam and social conservatism. In the first case the state is obliged to provide tools for broad social support, and in the second – this should make the representatives of the class of rich businessmen. Example in this regard has already been cited Bangladeshi banker. Shariatskite economists ignore the final parameters of the relationship between state and market. They reject 100% st state intervention, but at the same time and against its total withdrawal. In fact, they call for the creation of a social market economy, which is constitutionally secured in many Western countries.
trnstd source : orientbg