Effect of economic turmoil on Islamic banking x-rayed

Legislation, governance and the effect of the economic crisis on Islamic banking and finance were the focus of a conference that was held last January 2010. The global economic turmoil was a test for both conventional and Shariah-compliant systems, said Hamad Al-Monawir, Assistant Undersecretary for Planning in a speech delivered on behalf of the Deputy Prime Minister for Economic Affairs, Minister for Development Affairs and Minister for Housing Affairs Sheikh Ahmad Al-Fahad Al-Sabah. The speech was delivered at the opening of the two-day conference that dwelled on the effects of the economic crisis on Islamic financing. The event was widely attended by banking and financial experts and representatives of Islamic banks and finance institutions.


Undoubtedly, just like everything else was affected by the economic turmoil, so was Islamic financing, Al-Monawir said while delivering the speech. He went on to add, “During last year’s conference on Islamic financing, the economic crisis had already started and had affected all financial systems worldwide. Islamic financing was not as largely affected by the crisis.” He said that the crisis did not differentiate between Sharia-complaint and conventional financing. Islamic and non-Islamic finances have undergone real tests of how strong the system was with regard to handling a crisis of such proportion, he said.


A major discovery that surfaced as a result of the economic crisis, he observed, was how feeble the arbitration systems were used in various financial companies. The crisis was largely linked to asset management, demands and the concepts of risk management, which contributed to the growth of the crisis, he added. The blame, he said, lies with the system, laws and legislation that were unable to restrain the crisis and contributed toward spreading it.


Talking to the Kuwait Times on the sidelines of the event, Emad Yousef Al-Monayea, Chairman and Managing Director of Liquidity House, a KFH subsidiary, said that one of the major elements that has enabled Islamic banking to resist the economic crisis were the assets that back the structures developed in Islamic banking. “Most of these structures have to be backed by these assets; these assets have to be actual, should have a value and have to have some kind of marketable features into them. This is one of the major elements that maintains Islamic banking,” Al-Monayea said.


The close control and the strong monitoring that the Central Bank of Kuwait was applying attributed to the lesser impact of the economic crisis on Islamic banking and on the majority of the banks overall, he added. According to Al-Monayea, although there are some positive signals at present the crisis has not fully subsided. “When we speak about international markets, the signs of recovery have started. Now, there are good investment opportunities for the people who have the capability and the liquidity, he said. Sheikh Ahmad Al-Yasin Al-Sabah cautioned the uptake of risky investments. In his words, good management and the following of Islamic teachings have made up the success formula of Islamic banking.


Source : kuwaittimes


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