Beyond interest-free banking — a prospect that would likely win few proponents in London or New York — executives from the world of Islamic finance argued at a conference yesterday that world markets weary of excessive risk and wealth imbalances should welcome ethical standards of investment based on religious tenets of fairness and transparency.
But they warned that the industry also needed to get its own house in order, by streamlining existing fragmented regulation and coming up with new products.
Some of the executives meeting for the ninth annual Islamic Finance Summit in London believe that the sector has already missed an opportunity in the current turmoil, by failing to seize the moment quicker to extol the benefits of investment that is based on the “real economy.”
Islamic banking, which conforms to Shariah, or Islamic law, forbids charging interest and requires deals to be based on tangible assets, providing some insulation from credit turbulence. Speculation is banned, as is dealing in futures, and risk is shared.
For many, that provides a contrast with the speculation and out-of-control risk-taking that contributed to the current global turmoil.
“In the midst of this global financial chaos and dangers, advantages lie between the real economy and the financial sector,” said Mohamad Nedal Al Chaar, secretary general of the Accounting and Auditing Organization for Islamic Financial Institutions. “A new financial system is emerging, it is the Islamic finance and banking system, because where we are today is a consequence of the compounded greed of individuals, institutions and nation states.”
That prospective hesitancy underscores a key problem facing the Islamic banking sector: a lack of understanding of its complex tenets, which is not aided by the diversity of rulings on what’s allowed by Muslim scholars across different jurisdictions.
“We still remain highly fragmented,” said Mukhtar Hussain, global chief executive officer of HSBC Amanah.
“The industry needs less discussion and more action, and more coherence with what it wants to achieve at a global level, not a local level,” he added.
Islamic finance currently represents around 2 percent of global financial assets, or $820 billion, but it is growing at an average of 28 percent annually.
The British government has supported the flourishing industry and there are now scores of Islamic banking institutions in London offering products including home loans and commercial investment structures to the country’s 2 million Muslims.
There is also an expectation that Britain will become the first Western government to issue a sovereign Islamic bond, or sukuk, which confers to investors a proportional ownership of an underlying physical asset as well as the income that it generates.
source : capcodetimes