Financial Times By Dr Humayon Dar. (Available at http://www.ft.com/cms/s/0/b96e901a-48c3-11de-8870-00144feabdc0.html?nclick_check=1)
Sir, The impressive growth of the Islamic finance industry over the past decade has not gone unnoticed – certainly not by those envious enough to tarnish its strictures against leverage, speculation and gross uncertainty. While some of the issues Lex (May 19) raises must certainly be debated, recognition should also be given to these principles, which have saved Islamic finance from the fate now being suffered by its western conventional counterpart.
It’s true that our industry is relatively new – certainly by conventional financial standards. But one must put emphasis on the fact that it is maturing, with two robust regulatory agencies in the Accounting and Auditing Organisation for Islamic Financial Institutions, and Islamic Finance Service Board, both issuing standards of practice. Sharia scholars are at the forefront of both these organisations.
A criticism of Islamic finance at this stage would be a criticism of the long standing relationship that it has had with capitalist investment banks, through which it has been able to develop innovative hybrid structures, with the added feature of sharia compliancy. Islamic finance has the potential of attracting a new flock of 1.6bn investors. A flock with principles, and also a flock that has enjoyed considerably better protection of capital than that seen in the west.
Learning from the practical mistakes of conventional financial institutions, Islamic banking has initiated a process of reform to further strengthen itself internally. The ruling recently issued by the International Fiqh Academy of the World Muslim League on Tawarruq (a synthetic commodity trade-based mechanism that achieves the economic effects of an interest-based loan) is a firm step in this direction.
Such developments must be appreciated rather than used as an example of disagreement among sharia scholars. Similarly, there is now greater clarity on sukuk structures after the well-advertised ruling against purchase undertakings in partnership-based sukuk.
Muscat, Sultanate of Oman