No debt sales, no progress for Islamic finance

By Mohd Johan Lee. Available at:

The sale of debt to third parties, especially through multiple securitisations, has been blamed for fueling the worst global financial crisis in generations. But some banking experts say the sale of debt is key to developing a liquid secondary Islamic bond market and a deeper, more sophisticated sharia banking system.
The global total of asset-backed securities issued and sold to investors fell by 79 percent to $441 billion in 2008, as overleveraged borrowers, banks and investors exited the market, according to think-tank International Financial Services London.
1. How does Islam view the sale of debt?
2. Does Islam allow the sale of debt between creditors and debtors and why?
3. Does Islam allow the sale of debt to third parties and why?
4. Does a prohibition on the sale of debt obstruct the development of the Islamic finance industry? If yes, how? Are there other ways in which such sales could be structured?

KUALA LUMPUR, June 24 – The sale of debt is, to certain extent, permissible in muamalat (economic transactions). One needs to study relevant practices under the muamalat to understand the do’s and the don’ts regulated by the sharia with regards to such buying and selling of debt. Like the sibling of transfer of debt (hawala al dayn), the straight forward sale of debt in its simplest form is generally permissible. This single-tier debt sale is widely known as bay al-dayn, namely sale of the debt. Such sale involves only the direct sale from the original creditor (the person who has the right to collect the indebtedness) to the purchaser. The only concern in such a single-tier debt sale is the purchaser, or rather to whom the creditor may sell this debt to. Here, two possible scenarios would be drawn. Should the creditor decide to sell the debt to the debtor himself (and thus reverting it back to where it begins), all the four mazhabs (of the Sunni) have agreed in principle that it is permissible. This sale is known as Bay al-Dayn li al Madin.

According to all the schools of religious law, the creditor has the full right to sell his debt to the debtor at any price. Here the practice of willing buyer, willing vendor should be adopted. Yet, some in the Hanbali’s school stress on differentiating between confirmed and non-confirmed debt. While the sale of the former is allowed, the sale of the latter is not permissible due to the uncertainty (gharar) involved in it. On the other hand, the Zahiri’s school is of the view that debt should not be sold. It may only be waived. To them, the debt is an uncertain right because the debtor may ignore or refuse to settle it (in the obvious, modern example of an NPL, non-performing loan, situation). Thus to sell a debt is to perform a sale of uncertainty (Bay al Gharar) and not permissible in Islamic economic transactions.

This discussion on Bay al-Dayn li al Madin should be differentiated from Bay al-Dayn li ghayr al Madin, namely the sale of debt to a third party and subsequently that of Bay al-Duyun (sale of debts), which is also known as Bay al Kali bil Kali. The sale to a third party (Bay al-Dayn li ghayr al Madin) would normally take place when a creditor would like to have instant cash instead of waiting for it to be fully paid up through the passage of time. Here, the creditor would sell it to any third party at a discount price on a cash payment basis. The jurists differ on the legitimacy of this practice.

The Hanafi’s, Shafi’i’s (some), Hanbali’s and Zahiri’s view this sale as not permissible regardless whether the debt is a confirmed or non-confirmed sale. However, some of the Shafi’i’s and Hanbali’s scholars like Ibn al-Qayyim are of the view that this sale is allowed with regards to the confirmed debt. Yet, according to al Shirazi, al Subki and al Nawawi, of Shafi’i’s school, the creditor has the right to sell his dayn subject to 3 conditions namely, the debt must be a spot debt, the debtor must have accepted the sale and the purchase consideration sum must be on spot basis. It is therefore the opinion of many contemporary jurists (especially those in support of debt sale in Malaysia) that such a sale to a third party is permissible so long as certain conditions and requirements are fulfilled.

However, most of the Middle Eastern jurists are of the view that such sale is not permissible due to hadith which states that ‘don’t sell what you don’t possess”. Those in support of the permissibility of such sale is of the view that the needs of the maqasid justifies it. Also, the fact that there is no explicit source of the shariah that prohibits such practice make it permissible under muamalat. The main concerns that led to the prohibition of such bay al dayn are the uncertainty, the risk, the absent of qabadh (control and ownership of the item) and the breaching of the rule of riba. To those who argue for such a sale, the existence of a transparent modern Islamic banking system and the development of the current system as to a remote ownership and control (through scriptless transaction for example) as well as the requirement of spot purchase consideration sum have circumvented earlier issues. Also, to mitigate the gharar issue, Malaysian Islamic bankers with the approval of their shariah advisors have long required certain conditions as to the maturity period of the debt, the payable period of the debt, to name a few.

As with the riba requirement of money in exchange for the same value of money (m1=m1), the sharia advisory council of the Securities Commission of Malaysia has submitted that since what has been sold is not a legal tender, the requirement of m1 for m1 should not be applicable. Thus the fact that the debt is sold at a discounted price is not an issue. It is indeed for the development of Islamic banking and monetary market that the sale of debt on spot be allowed. Without such practice, the creditors and bankers in an Islamic banking system cannot securitise their debts as practiced by the conventional system.

Thus, the permissibility of such debt sales is crucial to ensure the liquidity of the Islamic money market and Islamic banking system. Without such debt sales, the Islamic finance industry can not be developed forward. This is because, without such debt trading, Islamic bankers will be stuck with their debt. As in typical banking practice, a low liquidity ratio would incapacitate the investment (and depository) business.

Best Regards

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  • Durham Football Team


    Boardroom Overhaul in the Middle East

    By Bradley Hope, © The National 2009. Available at

    Under pressure from the economic downturn, companies across the country are shaking up their leadership structures to ensure they are able to survive in the coming months, and are better protected against future shocks. In the past few weeks alone, chief executives at some of the country’s largest property companies have stepped down or been replaced. These include Simon Azzam, the chief executive of Union Properties for 23 years, and Sulaiman al Fahim, the founding chief executive of Hydra Properties, who was replaced as the director general of Dubai’s Department of Finance, has resigned from board positions at Deyaar Development, Dubai Islamic Bank, National Bonds Corporation and Taaleem. No reasons were given publicly for any of these changes, but analysts say that in times of trouble shareholders like to turn to new faces. As companies come to grips with changes in the marketplace, management shifts are likely to increase.

    “At the beginning of this slowdown, there was a pause, but we are now seeing signs of a determination to recruit for positions at a very senior level,” says David Johnson, a partner with the executive recruitment firm Whitehead Mann. “There is a growing sophistication now for who they need. In the past, it was ‘I need another five people or another 10 people’.” Companies are particularly focusing on positions such as chief financial officer as they struggle with a pronounced lack of liquidity and difficulties in collecting outstanding payments. “It’s a new world,” says Charles Willson, a recruiter in Dubai. “You’ve got to make income in places you weren’t making income last year. There is a need for people who can drive businesses in different ways.”

    Even more profound is the shake-up taking place on the boards of directors of companies as regulators take a harder stance on the way they are set up, Mr Johnson says. Board members are supposed to be a company’s watchdog on behalf of shareholders: they prevent chief executives from making bad decisions, offer guidance as the company develops and approve budgets. “If there’s anything we’ve learned from the global financial crisis, it’s that there was a failure on the level of the boards,” says Nasser Saidi, the chief economist of the Dubai International Financial Centre. “They were not listening to what their risk management committees were telling them.”

    Mr Saidi says the role of an independent director is now even more important. “The ability to say ‘no’ is the single most important characteristic of an independent director,” he says. “He needs to be an impartial judge, someone who can face up to the chairman if he doesn’t agree with him. These are crucial times on a global level. Boards need to be much more involved than ever before. “Risk management is a critical factor. We need much more knowledgeable and effective boards than at any other time in history.” Banks are the priority right now, according to Mr Saidi. “Corporate governance of banks is, in my mind, more critical than that of listed companies,” he says. “The bottom line is they are using other people’s money all the time.”

    Last week, the Central Bank issued a new set of recommendations for good governance at banks that could lead to major changes at the helm of financial institutions. The guidelines cover a range of topics, from how a board meeting should be run to the need for independence and the importance of attending all meetings. One of the recommendations is drawing the most attention. It says: “There are limits on the number of external appointments you can accept and you should not accept an appointment to be a director of more than one bank.” The idea behind this is straightforward. If a director is devising strategies for two competing organisations, there is a conflict of interest. Also, if a director is overstretched between too many boards, it will be harder to devote due attention.

    Several powerful bankers are in direct conflict with this recommendation. Ahmed Humaid al Tayer, for instance, is the chairman of the Emirates National Bank of Dubai and the Commercial Bank of Dubai, along with a number of other chairmanships and senior positions around Dubai.

    A representative of his office said Mr al Tayer was still reviewing the new recommendations. The tendency of a smaller group of Emiratis to be on many boards of companies is known as the “superman effect”, says Jassem Busaibe, the chief executive of the property investment firm Arady. “It exists because there is a limited pool of nationals here that senior government officials trust,” he says. “I think it is changing. Only very recently were chief executives being invited to the board as full members. There is an incentive now to maybe have more oversight at the board level.”

    Mr Johnson says he is advising several large conglomerates on the best ways to comply with international good governance guidelines. These companies will have to prove they have the necessary checks and balances in place before they can make a public offering of stock or borrow funds from the international capital markets, he says.The Central Bank recommendations follow regulations that were submitted by the Emirates Securities and Commodities Authority that call for independence on the boards of all publicly traded companies, as well as transparency and disclosure of financial records.

    “From a corporate governance perspective, this financial crisis is a perfect storm,” says Nick Nadal, the director of the Hawkamah Institute for Corporate Governance in Dubai. “The rulers, from high up, are putting in place the restructuring of many boards across the country. What you are seeing is the bringing in of independent expertise and assessment to see where the company stands and where it should be going.”Mr Nadal says the move to improve corporate governance preceded the crisis, but was coming at a faster pace because of the harsher economic conditions.

    Best Regards

  • S4022953
  • With Professor Dr. Syed Khalid Rashid at Cape of Good Hope, Cape Town, South Africa.

    TAWARRUQ: A Methodological Issue in Shari`a-Compliant Finance

    Despite the International Council of Fiqh Academy, recently declared organised tawarruq impermissible, Malaysian stock exchange still plan to launch tawarruq based platform to execute commodity murabaha transactions. To enlighten the issue further, it would be very beneficial to refer a workshop on Tawarruq and its methodoligical issues held at the London School of Economics, February 1, 2007 Available at: Only then we may have good understanding on the actual issues of Tawarruq. Enjoy reading!

    Although various definitions of tawarruq have been offered in Islamic finance literature, it is generally used to describe a transaction in which a financial institution sells a commodity to a customer on deferred payment at cost plus profit, and the customer then sells the commodity on a spot basis to a third party for cash. Critics have questioned whether use of this instrument is even permissible under the sharī`a. Many cite the economic similarities of the transaction to other prohibited transactions and the potentially deleterious effects of tawarruq on society. Nevertheless, its proponents adamantly view the instrument as not only permissible but also helping to advance the growth of Islamic finance. The goals of this workshop were to: (1) identify the issues and areas of concern about tawarruq in order to gain a better understanding of how it is currently used and applied in the market from the view of practitioners, economists, sharī`a

    After a morning session highlighting participants’ views, the following sets of questions were gathered from the various points raised and used as the basis for an informed and guided discussion. However, due to time constraints not all issues were discussed.
    1. The role of debt in Islamic finance
    a. Criticism of debt: Is debt not linked to the “real” goods/services economy? b. Does debt cause instability?
    2. What kind of debt is permissible
    a. Tawarruq within consumer debt versus within commercial debt. b. Does it make any difference if one mode is used as against the other from an economics perspective?
    3. What should the role of a bank be in tawarruq
    a. Should a bank determine whether the need is genuine or is it just to provide product services? b. If not the bank, then who should decide? c. What should be the parameters to make that decision?
    4. Tawarruq: its application as an Islamic finance product
    a. Is there a tawarruq on which all agree as to its permissibility and advisability? b. Is there a need for it? (i) Does it help convert non-sharī`a practices to Islamic finance? (ii) Due to constraints on some Islamic transactions, does tawarruq help provide for these needs as an alternative? (iii) Does it help meet the immediate needs for hedging and liquidity relief? c. What conditions, if any, should be placed (i) as to contractual terms, (ii) as to its use/purpose, (iii) as to other limits? d. What are macro- and microeconomic consequences of it? Should these dictate that restrictions be placed on it? Or does such logic stifle innovation? e. Can tawarruq evolve to become more widely accepted? f. What alternatives are conceivable for tawarruq where it meets needs?
    5. How would participants define intention, form, and substance in Islamic finance
    a. Fiqh’s concerns with both form and substance: which one(s) apply with tawarruq? b. Hīlah/makhraj: (i) How is hīlah defined? (ii) How is makhraj defined? (iii) Must either be avoided and to what degree and how? (iv) Is tawarruq either of these two?
    6. Economics and fiqh
    a. What is the status of economic theories in Islamic finance? b. Relation of macro- and microeconomics in Islamic product development? c. Relation between contract, institution, government, economy and society?
    d. Turning to economic models, do economists in Islamic finance have a model that they could agree on?
    e. Would the proposed model be agreed to by other economists?
    7. Participation of non-ulama voices
    a. Lay persons: in the market, education required versus government role. b. Siyasa shar`iyya. c. Specialists, in particular, economists
    8. Role of sharī`a committees
    a. Should sharī`a committees analyze issues from both a micro and a macro perspective with the aid of relevant experts? b. Is Islamic finance to support economic goals or rather something else? c. What role should sharī`a scholars play in determining policy as well as law?

    Summary of Dr. Mohammed Elgari’s position paper
    Contrary to twentieth century Islamic economic thought, Dr. Elgari believes that it is possible to fit an Islamic banking institution into an existing modern economic system, and this includes tawarruq. Tawarruq, he argued, does not violate the established principles of the sharī`a; rather, tawarruq is permissible. A number of historical precedents were cited as evidence. Attempts to compare Islamic financial institutions with their conventional counterparts in terms of efficiency, he warned, is counterproductive since the majority of Muslim consumers will still avoid the conventional forms due to reasons of faith. As the intention of those who use tawarruq is to refrain from ribā transactions, not to engage in them, sharī`a scholars largely agree that tawarruq cannot be considered a hīlah, or an artifice. A hīlah is present only if the intention of the parties involved is to secure the prohibited transaction by using a permissible arrangement as a conduit. Given the abundance and choice of interest-bearing transactions currently available, there is no need for anyone to resort to deceit in order to engage in a lender-borrower transaction. Given the current advances in Islamic finance, he argued that tawarruq is actually a positive solution for a banking system that has adopted the sharī`a as the guiding principle for its contracts and procedures. Though he did agree that in itself it is not ideal, the proliferation of tawarruq transactions in an economy will probably have a positive overall macroeconomic outcome.

    Summary of Professor M. Nejatullah Siddiqi’s position paper
    Adopting a macroeconomic point of view, Professor Siddiqi argued that the impact of tawarruq, a debt product, on the economy was far more harmful than beneficial. For that reason, he contends tawarruq should unequivocally be banned. Tawarruq creates new debts and moreover debts far larger than the cash received. Tawarruq moves the economy from the asset market toward the money (debt) market, where the underlying signaling and equilibrating mechanisms are no longer linked to the real market. Debt creation does not increase the net wealth of a society because every addition to social wealth is cancelled by a similar amount of wealth owed in the future. Therefore, the compulsion for economic growth is created by the need to repay these larger amounts of debt owed. Debt proliferation also leads to gambling-like speculation and greater instability in the economy. Furthermore, debt leads to inequality in the distribution of income and
    wealth and inefficiencies in the allocation of resources, raises anxiety levels, and causes destruction of the environment. Though he acknowledged there are certain short-term benefits to it for the individual, the harmful effects on the society overall are far greater.

    Role of debt in Islamic finance.
    The discussion session at first developed from Professor Siddiqi’s points mentioned above. It revolved around how the institutionalization of modern-day debt and its application relates to the historical precedents commonly cited by scholars. Economists contend that due to financial and social advances, the two are diametrically different. Hence, any link between the two is tenuous. Sharī`a scholars argued that the two were compatible and the precedents still relevant. Further questions evolved as to whether the acceptance and usage of debt-based products like tawarruq are changing the paradigm of Islamic finance from a development form of banking to a more debt-based banking system, mimicking that of conventional financial products. It was further feared that Islamic ideals of stability, efficiency, and economic equality would be jeopardized by the purported negative effects of debt products like tawarruq. However, arguments linking debt markets to inherent instability need further in-depth empirical evidence. Furthermore, participants demonstrated little unanimity as to what alternative products or models would successfully fill that debt gap.

    The issue of form versus substance in relation to tawarruq
    As with the previous workshop, the topic of form versus substance played a major role, this time in the debate pertaining to tawarruq, its application and its alternatives. In the context of this discussion, some sharī`a scholars raised the Islamic Finance Project point that though tawarruq was mentioned only in the Hanbali school of thought, its substance under other names is found in all schools of thought. Moreover, some pointed out that practice of it could be found throughout history, including within Arabia (such as in Najd). Discussion on intention and the maslaha behind the prohibition of interest, in the context of tawarruq, were also critically addressed. Questions further developed as to who should be the ones to judge as to the masalih and the maqasid in the matter of tawarruq. Nevertheless, it was put forth that there is a need to minimize the intellectual tension between formalism and essentialism, as between the approaches that
    sharī`a scholars and economists take to the subject of Islamic finance.

    Advisability of tawarruq
    Though many agreed that tawarruq’s permissibility from a sharī`a point of view was not in dispute, most agreed that its advisability as to its scope of usage and its application should be revisited. Many argued that its usage was linked, in the case of individuals, to the immediate dire need for cash where sharī`a-compliant alternatives were lacking. Some viewed tawarruq as allowed only in cases of dire necessity, whereas others viewed it less restrictively. The discussion led the participants to ask whether a distinction should be made between tawarruq for commercial consumption versus individual consumption. With the notable exceptions of a few economists who still felt tawarruq should not be permitted under any circumstances, most felt that tawarruq practiced at the individual level is acceptable. Most also agreed that it was acceptable if it would help convert conventional banks into sharī`a-compliant ones.

    Restrictions to tawarruq
    Many felt that tawarruq practiced at the institutional systemic level is more of a problem. Some felt that placing restrictive conditions on its use, like that linking it to “real” goods and services transactions, are necessary. Some sharī`a scholars argued against having different sets of rules according to levels of wealth. Other sharī`a scholars feared that placing restrictions or prohibitions on its use would inadvertently prohibit something that is permitted and that leads to something “good,” hence violating a major principle of Islam. Many felt strongly that government and regulatory policies placing limits on its usage would be best.

    Banks’ roles
    Islamic financial institutions’ responsibilities and duties were discussed within the context of selling tawarruq. One participant proposed that institutional consumers be required to use alternatives first before use of tawarruq is considered, and that for individual consumers, a more flexible, bespoke approach to each customer should be adopted, based on what is genuinely needed or desirable for them. It was unclear whether the burden of regulating tawarruq and informing customers of the risks should lie with the financial institutions that sell it, or rather with government and regulatory bodies. The role of banks in educating the public on tawarruq and the problems of debt was also raised. However, participants highlighted that though banks are able to help educate the public on the product itself, they could not take up the responsibility to provide guidance on sharī`a matters.

    Viable alternatives to tawarruq
    Alternative products cited were qard hasan, ijara, salam, istisna’, service ijara, bay’ al-inah, commodity murabaha, and even non-Islamic conventional loans. The participants examined and debated the merits of each product, though no consensus emerged and no alternative working models were proposed. Some continued to argue for banning tawarruq, while others argued that restricting it would stifle innovation and development of Islamic finance. It was nevertheless agreed that Islamic finance including tawarruq suffered from a perception and misrepresentation problem.

    Degree of consensus
    Despite all the points made, at the conclusion of the workshop, participants’ views remained largely divergent. Most agreed that though tawarruq is not ideal, it is on the other hand not haram. Most also agreed that tawarruq should have some form of policy parameters. Some continue to believe that tawarruq presents risks to the Islamic banking paradigm while others felt that tawarruq has helped to expand and
    further Islamic finance, citing the example of Saudi Arabia’s growth in this area. Almost everyone agreed that the objection to tawarruq was more to its advisability rather than its permissibility. Further research is needed on the role of debt, its risks, and the extent to which it is causing a negative paradigm shift for Islamic finance as a whole. Differences remain as to whether different rules apply to individual consumers compared to commercial players. All participants agreed that there was a need for enhancing the discussions between sharī`a advisers and economists and offered several solutions and proposals: (1) continued work on a journal on the fiqh of Islamic finance; (2) further research into the role of debt as well as on how to implement ideal Islamic economic models; (3) increased empirical data from all independent sources; and (4) holding future workshops, including sessions with the London School of Economics, to discuss related issues and specific products and instruments, with the goal of achieving unified recommendations or decisions.

    Best Regards

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  • Madrid, Spain

    Does Islamic finance need for an “Islamic Goldman Sachs”?

    Originally taken from “Godly but ambitious” featured out in the Economist (Available at:

    MOST practitioners of Islamic finance pride themselves on their modesty. But not Adnan Yousif, the chairman of the Union of Arab Banks, a regional club for financial firms. He has recently struck a tone more reminiscent of greed-is-good Wall Street, with a grand plan to build the biggest Islamic bank yet seen, spanning the world and providing Muslim countries with new financial services their people have barely heard of. “People never thought big here, never thought globally,” he says.

    Mr Yousif’s ambitions date to the founding of modern Islamic finance. During the 1970s oil boom the Gulf’s Muslim elite needed to put their new-found wealth somewhere, and American government bonds seemed the safest option. Yet Islam prohibits the charging of interest. So some sheikhs bought bonds but let their Western banks keep the interest, in the casual manner of a customer leaving change on a restaurant table. To Mr Yousif, then a young banker at American Express in his native Bahrain, this made no sense. At a time when Muslim countries had imposed an oil embargo over America’s support for Israel why, he wondered, refuse the Americans oil but give them billions of dollars?

    The embargo faltered and ever more money flowed to the Gulf, prompting Muslim scholars to seek ways to cleanse finance of interest payments. Practical men like Mr Yousif paid attention. In 1980 he moved to Arab Banking Corporation, a Bahraini bank, and set up an Islamic-finance division. It was little more than a few desks in a bare room where white-robed bankers created investments that generated profits in forms other than interest. The bank’s bosses thought it would be, at best, a niche business with little chance of competing against Western-style finance.

    But over the next two decades Islamic banking prospered, driven by a revival of faith following the Iranian revolution in 1979. By the turn of the century there were more than 200 Islamic banks and Mr Yousif was leading from the front. He turned his bank’s Islamic-finance division into a stand-alone institution, then became chief executive of Bahrain Islamic Bank in 2002. Two years later, now head of the Al Baraka Group, another Bahraini bank, he oversaw its initial public offering (IPO), the largest thus far by an Islamic bank. Along the way, interest-avoidance schemes became ever more sophisticated. Today $700 billion of global assets are said to comply with sharia law. Even so, traditional finance houses rather than Islamic institutions continue to handle most Gulf oil money and other Muslim wealth.

    In private, some Gulf bankers speak of the need for an “Islamic Goldman Sachs”. That is what Mr Yousif is now attempting to create—a sharia-compliant investment bank with global reach and ready access to capital. It will be called Istikhlaf, Arabic for “doing God’s work”. Others in the industry have welcomed the move. “Islamic banking cannot be taken seriously until we have some global Islamic banks,” says Simon Eedle, managing director of Islamic banking at Calyon, a French investment bank. “They don’t have to be present everywhere in the world, but they need to be in the top 100.”

    Mr Yousif says he has raised $3.5 billion from Gulf investors and is seeking the same again by the end of the year. In addition he plans a $3 billion IPO in Dubai and Bahrain. The oil price is down from last year’s peak, but there is plenty of cash in the region looking for a home. So far, though, most of what Mr Yousif has collected comes from other banks rather than private investors. He and his backers, including Sheikh Saleh Kamel, the force behind the Al Baraka Group, delayed the launch of Istikhlaf last year after turbulence in the financial markets. They also dropped talk of raising up to $100 billion—at least for now.

    Even with a more modest capital base of $10 billion, Istikhlaf will stand a reasonable chance of picking up lucrative finance deals. The region’s ubiquitous infrastructure projects need beefy backers. Most Islamic banks have so far been absent from this field because of their small size. Deals instead went to sharia-compliant units of multinationals like Deutsche Bank, HSBC and Citigroup. These will now face stronger local competition.

    Mr Yousif’s ambitions do not end there. He plans to create a team of venture-capital researchers to sift through innovators’ ideas and provide the good ones with a cradle-to-IPO service. Many people do this successfully in Silicon Valley, but potential investors in his bank may wonder how easy it will be to transplant that sort of high-technology entrepreneurship to the Gulf.
    You say sukuk, I say heresy

    More worrying still, the rules for Islamic finance are not uniform around the world. A Kuwaiti Muslim cannot buy a Malaysian sukuk (sharia-compliant bond) because of differing definitions of what constitutes usury. Indeed, a respected Islamic jurist recently denounced most sukuk as godless. Nor are banking licences granted easily in most Muslim countries. That is why big Islamic banks are so weak. Often they are little more than loose collections of subsidiaries. They also lack home-grown talent: most senior staff are poached from multinationals.

    There are worries, too, about Istikhlaf’s lack of a Saudi presence or partner. There have been rumours of a merger with Saudi Investment Bank, although Mr Yousif has denied this. Such a deal would be a big help. Saudi Arabia is one of the main growth areas for Islamic banking. It has the largest oil reserves and the most valuable project-finance deals. It is no coincidence therefore that the biggest Islamic bank to date, Al Rajhi, is Saudi. But if anyone can snatch the lead from the Saudis it is Mr Yousif. Never afraid of breaking the mould, he confesses to admiring Alan Greenspan, a man (of Jewish origins) better known as a disciple of Ayn Rand, the prophet of rugged capitalism, than as a scholar of holy scripture. Mr Yousif has read the former Fed chairman’s memoirs “three or four times”, he says. With luck he will heed Mr Greenspan’s warnings about irrational exuberance.

    Best Regards

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  • With Sheikh Amin Fateh Amer at his office, Dubai, UAE.

    Arab nations ’need to revert to gold dinar’

    By Anwar Elshamy (

    A financial expert has called for abolishing the current paper money system and returning to gold currencies instead, saying it was the only way out of the current financial crisis. Dr Mohamed Syafii Antonio, a member of the Islamic Banking Committee at the Central Bank of Indonesia, said the current paper money system had opened the door for the fraudulent acts that have brought down giant financial institutions on Wall Street.
    “By the power of gold we can stabilise the currency. After the crisis, we have to ask ourselves, what went wrong? We have to returning to the gold system where currencies were made of gold and tighten monitoring of the system,” Dr Antonio said. “Today, you own money, but it is not real money, it is paper. Money should be pegged to some commodity like gold. Otherwise it is not real money,” he added.

    He also urged Muslim countries to return to the “Islamic Gold Dinar” as a single currency, while pointing out that the paper money currencies adopted by Muslim countries were just products of the colonial era.
    “Muslims were using the gold dinar in business transactions since the days of Prophet Muhammad until Western powers invaded the Muslim world. “I hope that every single Muslim country adopts a dinar made of gold again to avoid the problems triggered by paper money which is a product of the capitalism,” he reiterated. He also stressed that currencies across the world should be pegged to gold to stabilise economy.
    “Today, a country can print a billion worth of its paper money and nobody will be the wiser. And the more a country prints, the higher the inflation,” he added.

    The expert, who was giving a lecture on Shariah-compliant finance that was held at the Qatar Charity and organised by the Indonesian Community association, also said that this was not the first time that the world was hit by a financial crisis. “Financial crises have erupted 32 times since the beginning of the 20th century. Among others, there was one that affected the world in 1907, one during World War One and again during World War Two, during the Great Depression of the 1930s, one during the 50s in Russia, the 60s in Germany, 70s in Mexico, Argentina, and Brazil, in 1998 in Southeast Asia, and now in the US.” On how Muslims can reduce the impact of the financial crisis, the expert urged Muslims to break away from capitalistic values.
    “Muslims should do away with many of the values promoted by the capitalist system. They should invest in Islamic instruments like suquk and go for Islamic insurance and deal in Islamic banking. “It is the greed of capitalism on Wall Street that brought down the financial institutions there.” Dr Antonio added.

    Best Regards

  • Harry Porter 392
  • Durham University Law Library

    Full Text of Obama’s Speech in Cairo.

    CAIRO – Text of President Barack Obama’s speech at Cairo University, as provided by CQ Transcriptions. (

    Good afternoon. I am honored to be in the timeless city of Cairo and to be hosted by two remarkable institutions. For over a thousand years, Al-Azhar has had stood as a beacon of Islamic learning. And for over a century, Cairo University has been a source of Egypt’s advancement. Together, you represent the harmony between tradition and progress. I’m grateful for your hospitality and the hospitality of the people of Egypt. And I’m also proud to carry with me the good will of the American people and a greeting of peace from Muslim communities in my country: Assalamu-alaikum.

    We meet at a time of great tension between the United States and Muslims around the world, tension rooted in historical forces that go beyond any current policy debate. The relationship between Islam and the West includes centuries of coexistence and cooperation but also conflict and religious wars.

    More recently, tension has been fed by colonialism that denied rights and opportunities to many Muslims and a Cold War in which Muslim majority countries were too often treated as proxies without regard to their own aspirations. Moreover, the sweeping change brought by modernity and globalization led many Muslims to view the West as hostile to the traditions of Islam.

    Violent extremists have exploited these tensions in a small but potent minority of Muslims. The attacks of September 11, 2001, and the continued efforts of these extremists to engage in violence against civilians has led some in my country to view Islam as inevitably hostile not only to America and western countries but also to human rights.

    All this has bred more fear and more mistrust. So long as our relationship is defined by our differences, we will empower those who sow hatred rather than peace, those who promote conflict rather than the cooperation that can help all of our people achieve justice and prosperity. And this cycle of suspicion and discord must end.

    I’ve come here to Cairo to seek a new beginning between the United States and Muslims around the world, one based on mutual interest and mutual respect, and one based upon the truth that America and Islam are not exclusive and need not be in competition. Instead, they overlap and share common principles, principles of justice and progress, tolerance and the dignity of all human beings.

    I do so recognizing that change cannot happen overnight. I know there’s been a lot of publicity about this speech, but no single speech can eradicate years of mistrust nor can I answer in the time that I have this afternoon all the complex questions that brought us to this point. But I am convinced that in order to move forward, we must say openly to each other the things we hold in our hearts and that too often are said only behind closed doors. There must be a sustained effort to listen to each other, to learn from each other, to respect one another, and to seek common ground.

    As the Holy Quran tells us, Be conscious of God and speak always the truth.

    That is what I will try to do today, to speak the truth as best I can. Humbled by the task before us and firm in my belief that the interests we share as human beings are far more powerful than the forces that drive us apart.

    Now, part of this conviction is rooted in my own experience. I’m a Christian. But my father came from a Kenyan family that includes generations of Muslims. As a boy, I spent several years in Indonesia and heard the call of the azaan at the break of dawn and at the fall of dusk.

    As a young man, I worked in Chicago communities where many found dignity and peace in their Muslim faith. As a student of history, I also know civilization’s debt to Islam. It was Islam at places like Al-Azhar that carried the light of learning through so many centuries, paving the way for Europe’s renaissance and enlightenment. It was innovation in Muslim communities…

    It was innovation in Muslim communities that developed the order of algebra, our magnetic compass and tools of navigation, our mastery of pens and printing, our understanding of how disease spreads and how it can be healed. Islamic culture has given us majestic arches and soaring spires, timeless poetry and cherished music, elegant calligraphy and places of peaceful contemplation. And throughout history, Islam has demonstrated through words and deeds the possibilities of religious tolerance and racial equality.

    I also know that Islam has always been a part of America’s story. The first nation to recognize my country was Morocco. In signing the Treaty of Tripoli in 1796, our second president, John Adams, wrote,

    The United States has in itself no character of enmity against the laws, religion or tranquility of Muslims. And since our founding, American Muslims have enriched the United States.

    They have fought in our wars. They have served in our government. They have stood for civil rights. They have started businesses. They have taught at our universities. They’ve excelled in our sports arenas. They’ve won Nobel Prizes, built our tallest building and lit the Olympic torch. And when the first Muslim American was recently elected to Congress, he took the oath to defend our Constitution using the same holy Quran that one of our founding fathers, Thomas Jefferson, kept in his personal library.

    So I have known Islam on three continents before coming to the region where it was first revealed. That experience guides my conviction that partnership between America and Islam must be based on what Islam is, not what it isn’t. And I consider it part of my responsibility as president of the United States to fight against negative stereotypes of Islam wherever they appear.

    But that same principle must apply to Muslim perceptions of America. Just as…

    Just as Muslims do not fit a crude stereotype, America is not the crude stereotype of a self-interested empire. The United States has been one of the greatest sources of progress that the world has ever known. We were born out of revolution against an empire. We were founded upon the ideal that all are created equal. And we have shed blood and struggled for centuries to give meaning to those words, within our borders and around the world.

    We are shaped by every culture. Drawn from every end of the Earth, and dedicated to a simple concept, E pluribus unum: Out of many, one. Now much has been made of the fact that an African-American with the name Barack Hussein Obama could be elected president. But my personal story is not so unique. The dream of opportunity for all people has not come true for everyone in America, but its promise exists for all who come to our shores. And that includes nearly 7 million American Muslims in our country today who, by the way, enjoy incomes and educational levels that are higher than the American average.

    Moreover, freedom in America is indivisible from the freedom to practice one’s religion. That is why there is a mosque in every state in our union and over 1,200 mosques within our borders. That’s why the United States government has gone to court to protect the right of women and girls to wear the hijab, and to punish those who would deny it.

    So let there be no doubt…… let there be no doubt, Islam is a part of America. And I believe that America holds within her the truth that regardless of race, religion, or station in life, all of us share common aspirations: to live in peace and security, to get an education and to work with dignity, to love our families, our communities, and our God. These things we share. This is the hope of all humanity. Of course, recognizing our common humanity is only the beginning of our task. Words alone cannot meet the needs of our people. These needs will be met only if we act boldly in the years ahead. And if we understand that the challenges we face are shared and our failure to meet them will hurt us all.

    For we have learned from recent experience that when a financial system weakens in one country, prosperity is hurt everywhere. When a new flu infects one human being, all are at risk. When one nation pursues a nuclear weapon, the risk of nuclear attack rises for all nations. When violent extremists operate in one stretch of mountains, people are endangered across an ocean. When innocents in Bosnia and Darfur are slaughtered, that is a stain on our collective conscience.

    That is what it means to share this world in the 21st Century. That is the responsibility we have to one another as human beings. This is a difficult responsibility to embrace, for human history has often been a record of nations and tribes, and, yes, religions subjugating one another in pursuit of their own interests.

    Yet in this new age, such attitudes are self-defeating. Given our interdependence, any world order that elevates one nation or group of people over another will inevitably fail. So whatever we think of the past, we must not be prisoners to it. Our problems must be dealt with through partnership, our progress must be shared. Now, that does not mean we should ignore sources of tension. Indeed, it suggests the opposite. We must face these tensions squarely. And so, in that spirit, let me speak as clearly and as plainly as I can about some specific issues that I believe we must finally confront together.

    1. The first issue that we have to confront is violent extremism in all its forms. In Ankara, I made clear that America is not and never will be at war with Islam. We will, however, relentlessly confront violent extremists who pose a grave threat to our security because we reject the same thing that people of all faiths reject, the killing of innocent men, women, and children. And it is my first duty as president to protect the American people.

    The situation in Afghanistan demonstrates America’s goals and our need to work together. Over seven years ago, the United States pursued Al Qaida and the Taliban with broad international support. We did not go by choice. We went because of necessity. I’m aware that there’s still some who would question or even justify the offense of 9/11. But let us be clear. Al Qaida killed nearly 3,000 people on that day.

    The victims were innocent men, women, and children from America and many other nations who had done nothing to harm anybody. And yet Al Qaida chose to ruthlessly murder these people, claimed credit for the attack, and even now states their determination to kill on a massive scale. They have affiliates in many countries and are trying to expand their reach.

    These are not opinions to be debated. These are facts to be dealt with. Make no mistake, we do not want to keep our troops in Afghanistan. We see no military — we seek no military bases there. It is agonizing for America to lose our young men and women. It is costly and politically difficult to continue this conflict.

    We would gladly bring every single one of our troops home if we could be confident that there were not violent extremists in Afghanistan and now Pakistan determined to kill as many Americans as they possibly can. But that is not yet the case. And that’s why we’re partnering with a coalition of 46 countries. And despite the costs involved, America’s commitment will not weaken. Indeed, none of us should tolerate these extremists. They have killed in many countries. They have killed people of different faiths but, more than any other, they have killed Muslims. Their actions are irreconcilable with the rights of human beings, the progress of nations, and with Islam.

    The Holy Quran teaches that whoever kills an innocent is as it is as it if has killed all mankind. And the Holy Quran also says whoever saves a person, it is as if he has saved all mankind. The enduring faith of over a billion people is so much bigger than the narrow hatred of a few. Islam is not part of the problem in combating violent extremism; it is an important part of promoting peace. Now, we also know that military power alone is not going solve the problems in Afghanistan and Pakistan. That’s why we plan to invest $1.5 billion each year over the next five years to partner with Pakistanis to build schools and hospitals, roads and businesses, and hundreds of millions to help those who’ve been displaced. That’s why we are providing more than $2.8 billion to help Afghans develop their economy and deliver services that people depend on.

    2. Now, let me also address the issue of Iraq. Unlike Afghanistan, Iraq was a war of choice that provoked strong differences in my country and around the world. Although I believe that the Iraqi people are ultimately better off without the tyranny of Saddam Hussein, I also believe that events in Iraq have reminded America of the need to use diplomacy and build international consensus to resolve our problems whenever possible. Indeed, we can recall the words of Thomas Jefferson, who said, I hope that our wisdom will grow with our power and teach us that the less we use our power, the greater it will be. Today America has a dual responsibility to help Iraq forge a better future and to leave Iraq to Iraqis.

    I have made it clear to the Iraqi people… I have made it clear to the Iraqi people that we pursue no basis and no claim on their territory or resources. Iraq’s sovereignty is its own. And that’s why I ordered the removal of our combat brigades by next August. That is why we will honor our agreement with Iraq’s democratically-elected government to remove combat troops from Iraqi cities by July and to remove all of our troops from Iraq by 2012.

    We will help Iraq train its security forces and develop its economy. But we will support a secure and united Iraq as a partner and never as a patron. And finally, just as America can never tolerate violence by extremists, we must never alter or forget our principles. 9/11 was an enormous trauma to our country. The fear and anger that it provoked was understandable. But in some cases, it led us to act contrary to our traditions and our ideals.

    We are taking concrete actions to change course. I have unequivocally prohibited the use of torture by the United States. And I have ordered the prison at Guantanamo Bay closed by early next year. So America will defend itself, respectful of the sovereignty of nations and the rule of law. And we will do so in partnership with Muslim communities, which are also threatened. The sooner the extremists are isolated and unwelcome in Muslim communities, the sooner we will all be safer.

    3. Now, the second major source of tension that we need to discuss is the situation between Israelis, Palestinians and the Arab world. America’s strong bonds with Israel are well-known. This bond is unbreakable. It is based upon cultural and historical ties and the recognition that the aspiration for a Jewish homeland is rooted in a tragic history that cannot be denied. Around the world the Jewish people were persecuted for centuries. And anti-Semitism in Europe culminated in an unprecedented holocaust. Tomorrow I will visit Buchenwald, which was part of a network of camps where Jews were enslaved, tortured, shot and gassed to death by the Third Reich. Six million Jews were killed, more than the entire Jewish population of Israel today. Denying that fact is baseless. It is ignorant, and it is hateful. It’s about preventing a nuclear arms race in the Middle East that could lead this region and the world down a hugely dangerous path.

    Now, I understand those who protest that some countries have weapons that others do not. No single nations should pick and choose which nation holds nuclear weapons. And that’s why I strongly reaffirmed America’s commitment to seek a world in which no nations hold nuclear weapons. And any nation, including Iran, should have the right to access peaceful nuclear power if it complies with its responsibilities under the Nuclear Non-Proliferation Treaty. That commitment is at the core of the treaty. And it must be kept for all who fully abide by it. And I am hopeful that all countries in the region can share in this goal.

    4. The fourth issue that I will address is democracy. I know there has been controversy about the promotion of democracy in recent years. And much of this controversy is connected to the war in Iraq. So let me be clear. No system of government can or should be imposed by one nation by any other. That does not lessen my commitment, however, to governments that reflect the will of the people.

    Each nation gives life to this principle in its own way, grounded in the traditions of its own people. America does not presume to know what is best for everyone, just as we would not presume to pick the outcome of a peaceful election. But I do have an unyielding belief that all people yearn for certain things: the ability to speak your mind and have a say in how you are governed, confidence in the rule of law and the equal administration of justice, government that is transparent and doesn’t steal from the people, the freedom to live as you choose. These are not just American ideas. They are human rights. And that is why we will support them everywhere.

    Now, there is no straight line to realize this promise. But this much is clear. Governments that protect these rights are ultimately more stable, successful and secure. Suppressing ideas never succeeds in making them go away. America respects the right of all peaceful and law-abiding voices to be heard around the world, even if we disagree with them. And we will welcome all elected, peaceful governments, provided they govern with respect for all their people. This last point is important because there are some who advocate for democracy only when they’re out of power. Once in power, they are ruthless in suppressing the rights of others.

    So no matter where it takes hold, government of the people and by the people sets a single standard for all who would hold power. You must maintain your power through consent, not coercion. You must respect the rights of minorities and participate with a spirit of tolerance and compromise. You must place the interests of your people and the legitimate workings of the political process above your party. Without these ingredients, elections alone do not make true democracy.

    5. The fifth issue that we must address together is religious freedom. Islam has a proud tradition of tolerance. We see it in the history of Andalusia and Cordoba during the Inquisition. I saw it firsthand as a child in Indonesia where devote Christians worshipped freely in an overwhelmingly Muslim country. That is the spirit we need today. People in every country should be free to choose and live their faith based upon the persuasion of the mind and the heart and the soul. This tolerance is essential for religion to thrive. But it’s being challenged in many different ways. Among some Muslims, there’s a disturbing tendency to measure one’s own faith by the rejection of somebody else’s faith.

    The richness of religious diversity must be upheld, whether it is for Maronites in Lebanon or the Copts in Egypt.

    And if we are being honest, fault lines must be closed among Muslims as well as the divisions between Sunni and Shia have led to tragic violence, particularly in Iraq.

    Freedom of religion is central to the ability of peoples to live together. We must always examine the ways in which people protect it. For instance, in the United States, rules on charitable giving have made it harder for Muslims to fulfill their religious obligation.

    That’s why I’m committed to work with American Muslims to ensure that they can fulfill zakat. Likewise, it is important for Western countries to avoid impeding Muslim citizens from practicing religion as they see fit, for instance, by dictating what clothes a Muslim woman should wear.

    We can’t disguise hostility towards any religion behind the pretense of liberalism. In fact, faith should bring us together. And that’s why we’re forging service projects in America to bring together Christians, Muslims, and Jews.

    That’s why we welcome efforts like Saudi Arabian King Abdullah’s interfaith dialogue and Turkey’s leadership in the Alliance of Civilizations.

    Around the world, we can turn dialogue into interfaith service so bridges between peoples lead to action, whether it is combating malaria in Africa or providing relief after a natural disaster.

    6. The sixth issue that I want to address is women’s rights. I know, and you can tell from this audience, that there is a healthy debate about this issue. I reject the view of some in the West that a woman who chooses to cover her hair is somehow less equal. But I do believe that a woman who is denied an education is denied equality. And it is no coincidence that countries where women are well- educated are far more likely to be prosperous.

    Now let me be clear, issues of women’s equality are by no means simply an issue for Islam. In Turkey, Pakistan, Bangladesh, Indonesia, we’ve seen Muslim-majority countries elect a woman to lead. Meanwhile, the struggle for women’s equality continues in many aspects of American life and in countries around the world. I am convinced that our daughters can contribute just as much to society as our sons.

    Our common prosperity will be advanced by allowing all humanity, men and women, to reach their full potential. I do not believe that women must make the same choices as men in order to be equal. And I respect those women who choose to live their lives in traditional roles. But it should be their choice. That is why the United States will partner with any Muslim- majority country to support expanded literacy for girls and to help young women pursue employment through micro-financing that helps people live their dreams.

    7. Finally, I want to discuss economic development and opportunity. I know that for many, the face of globalization is contradictory. The Internet and television can bring knowledge and information but also offensive sexuality and mindless violence into the home. Trade can bring new wealth and opportunities but also huge disruptions and change in communities. In all nations, including America, this change can bring fear; fear that, because of modernity, we lose control over our economic choices, our politics, and most importantly, our identities, those things we most cherish about our communities, our families, our traditions, and our faith.

    But I also know that human progress cannot be denied. There need not be contradictions between development and tradition. Countries like Japan and South Korea grew their economies enormously while maintaining distinct cultures. The same is true for the astonishing progress within Muslim majority countries from Kuala Lumpur to Dubai. In ancient times and in our times, Muslim communities have been at the forefront of innovation and education. And this is important because no development strategy can be based only upon what comes out of the ground nor can it be sustained while young people are out of work. Many Gulf States have enjoyed great wealth as a consequence of oil, and some are beginning to focus it on broader development. But all of us must recognize that education and innovation will be the currency of the 21st century. And in too many Muslim communities, there remains underinvestment in these areas. I am emphasizing such investment within my own country. And while America, in the past, has focused on oil and gas when it comes to this part of the world, we new seek a broader engagement.

    On education, we will expand change programs and increase scholarships like the one that brought my father to America. At the same time, we will encourage more Americans to study in Muslim communities. And we will match promising Muslim students are internships in America, invest in online learning for teachers and children around the world and create a new, online network so a young person in Kansas can communicate instantly with a young person in Cairo. On economic development, we will create a new core of business volunteers to partner with counterparts in Muslim majority countries. And I will host a summit on entrepreneurship this year to identify how we can deepen ties between business leaders, foundations, and social entrepreneurs in the United States and Muslim communities around the world.

    On science and technology, we will launch a new fund to support technological development in Muslim majority country and to help transfer ideas to the marketplace so they can create more jobs. We will open centers of scientific excellence in Africa, the Middle East, and Southeast Asia and appoint new science envoys to collaborate on programs that develop new sources of energy, create green jobs, digitize records, clean water, grow new crops.

    Today, I’m announcing a new global effort with the organization of the Islamic Conference to eradicate polio. And we will also expand partnerships with Muslim communities to promote child and maternal health. All these things must be done in partnership. Americans are ready to join with citizens and governments, community organizations, religious leaders, and businesses in Muslim communities around the world to help our people pursue a better life.

    The issues that I have described will not be easy to address, but we have a responsibility to join together to behalf of the world that we seek, a world where extremists no longer threaten our people and American troops have come home; a world where Israelis and Palestinians are each secure in a state of their own and nuclear energy is used for peaceful purposes, a world where governments serve their citizens and the rights of all God’s children are respected. Those are mutual interests. That is the world we seek.But we can only achieve it together. I know there are many, Muslim and non-Muslim, who question whether we can forge this new beginning. Some are eager to stoke the flames of division and to stand in the way of progress. Some suggest that it isn’t worth the effort, that we are fated to disagree and civilizations are doomed to clash.

    Many more are simply skeptical that real change can occur. There is so much fear, so much mistrust that has built up over the years. But if we choose to be bound by the past, we will never move forward. And I want to particularly say this to young people of every faith in every country. You more than anyone have the ability to reimagine the world, the remake this world. All of us share this world for but a brief moment in time. The question is whether we spend that time focused on what pushes us apart or whether we commit ourselves to an effort, a sustained effort to find common ground, to focus on the future we seek for our children and to respect the dignity of all human beings.

    It’s easier to start wars than to end them. It’s easier to blame others than to look inward. It’s easier to see what is different about someone than to find the things we share. But we should choose the right path, not just the easy path. There is one rule that lies at the heart of every religion, that we do unto others as we would have them do unto us. This truth transcends nations and peoples, a belief that isn’t new, that isn’t black or white or brown, that isn’t Christian or Muslim or Jew. It’s a belief that pulsed in the cradle of civilization and that still beats in the hearts of billions around the world. It’s a faith in other people. And it’s what brought me here today.

    We have the power to make the world we seek, but only if we have the courage to make a new beginning, keeping in mind what has been written. The Holy Quran tells us, Mankind, we have created you male and a female. And we have made you into nations and tribes so that you may know one another. The Talmud tells us, The whole of the Torah is for the purpose of promoting peace. The Holy Bible tells us, Blessed are the peacemakers, for they shall be called sons of God. The people of the world can live together in peace. We know that is God’s vision. Now that must be our work here on Earth.

    Thank you. And may God’s peace be upon you. Thank you very much.

    Note: It would be interesting to observe numerous responses of Mr. Obama’s speech. I’ll try to post my thoughts on the overall contents of the speech in due course.

    Best Regards

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