Islamic Finance expected to grow to 3 trillion by 2018

Islamic Finance expected to grow to 3 trillion by 2018

13 August 2015 Consultancy.uk Available at: http://www.consultancy.uk/news/2407/islamic-finance-expected-to-grow-to-3-trillion-by-2018

Islamic finance has been growing rapidly over the past decades, reaching $1.8 trillion in 2014 and is expected to exceed $3 trillion by 2018. In a recent article by BearingPoint Institute, the consulting firm considers the differences between the partnership practice of Islamic banking and the practice of interest. The firm also explores the wider challenges faced by both Islamic and western banking institutions as the practice of Islamic banking further expands to meet the needs of up to 1.6 billion potential participants in Islamic FINANCIAL products and services. How finance works is somewhat rigidly understood within much of the Western FINANCIAL world, and while companies are developing potentially disruptive new financial products, as well as creating new platforms on which to access funding, the fundamentals remain relatively similar. Islamic states, such as Saudi Arabia, Qatar and Malaysia, also practice a form of finance, called Islamic finance, which eschews one of Western finances fundamental concepts: interest.

Islamic finance

Interest has the potential to be leveraged punitively, where the need of the beneficiary is taken advantage of by those with means. To prohibit less than ethical practices within finance, Islamic finance seeks to SHARE risk/reward as a key tenet. Banks are required to build a clear understanding of what is being financed, with the agreement between parties more akin to a partnership. The principles of Islamic banking come from the Sharia law that prohibits usury, uncertainty and speculation; rather it requires transparency and necessitates physical presence for money transfers. The rise of Islamic Finance As its practices are firmly rooted in ethical constraints on practices, with profit not an above all but state imposition, Islamic banking has quietly enjoyed a growing MARKET share in Saudi Arabia, Qatar and Malaysia, recently reaching 50%. Some of the region’s most powerful banking institutions are engaged in the practice, including Al Rahji Bank and Bank Al Jazira in Saudi Arabia, as well as the Kuwait Finance House. Today Islamic banking is a $1.8 trillion dollar FINANCIAL structure, with a large number of different segments being served by Islamic banking institutions. The banking practice is growing rapidly, with double digits, and is expected to be worth up to $3 trillion by 2018. One of the main FINANCIAL instruments in Islamic banking is sukuk, which is roughly equivalent to bonds. Through entering into partnerships with small players, Islamic banks provide a different funding source than government finances, which accounts for 62% of some markets. Furthermore, unlike conventional bonds, sukuk grants the investor a share of an asset, along with CASH and risk. The largest part of the total bonds issued in the market has been provided to financial services at 26%, followed by energy & utilities at 25%. Transport comes in at 19% followed by real estate at 8%. Sectors engaging Islamic finance Ethical partnerships.

According to BearingPoint, a number of challenges face the form of banking. The main challenge relates to staying within international and national regulations while at the same time making sure that providers keep their reputations and remain within the spirit and the letter of the practice. Finding relevant skills also is an issue for institutions, at both the level of principles and operational practice required in meeting face to face and upholding strong bonds. Western financial institutions seeking to enter the Islamic financial market face considerable hurdles. According to the researchers, a lack of cultural awareness and a fundamentally wrong intention behind the practice are possible barriers. One way to enter the relevant markets is to create subsidiaries that are their own brands, like ‘Amanah’ created by the HSBC group. As the practice is expanding into new areas, the risk of Western business not fully understanding the way of engaging with partners makes it considerably more difficult to reach out to the Middle East, Africa and Far Eastern countries, such as Malaysia and Indonesia. Banks in these regions are increasingly likely to come across organisations for whom it has a place – customers, partners, suppliers, and governmental and non-governmental organisations.

Islamic financial educators bill to be tabled in Parliament

Islamic financial educators bill to be tabled in Parliament

Available at: http://www.themalaysianinsider.com/malaysia/article/islamic-financial-educators-bill-to-be-tabled-in-parliament

Tan Sri Dr Rais Yatim says an Islamic financial educators bill is expected to be tabled in Parliament by the end of this year or early next year.

Aimed at controlling the quality of Islamic FINANCIAL educators, Tan Sri Dr Rais Yatim said the bill would ensure continued professional development among educators.

It would also make Malaysia a hub and reference centre for Islamic finance, he added.

“Under this bill, appropriate Islamic finance curriculum and training will also be determined in order to maintain the quality of Islamic finance education,” Rais, who is chairman of the International Council of Islamic FINANCIAL Educators International Advisory Panel, told reporters after opening the council’s roundtable meeting in Port Dickson today.
He said Islamic finance had been seen as a very promising sector that had made Malaysia a leader in this sector.

He added that this would also provide an opportunity for Asean member countries to work together and benefit from their regional economic development.

He said Muslims made up over 50% of the Asean population and this would bring great potential for the Islamic finance and banking MARKET.

Rais also expressed hope that through industry experts and scholars union, the quality and professionalism level of talents in Islamic finance and banking could be enhanced.

Forty experts who are also lecturers of Islamic finance, representing 15 local universities, are attending the three-day meeting. – Bernama, August 8, 2015.

Letter from Yusuf al Qaradawi to the Government of Malaysia

Surat Samahah al-Shaykh Yusuf al-Qaradawi kepada Anwar Ibrahim dan Kerajaan Malaysia. (Terjemahan Marwan Bukhari)

Segala puji bagi Allah, selawat dan salam ke atas Rasulullah, keluarga, sahabat dan sesiapa yang mengikuti petunjukNya.
Sesungguhnya Malaysia sebuah negara yang dicintai kami, besar untuk kami dan ada tempat di sisi kami.

Malaysia ada kenangan indah pada diri kami, kecintaan yang benar di hati kami dan kedudukan yang tinggi di akal kami. Hubungan yang erat dan ziarah yang kerap menghimpunkan kami dengan rakyat Malaysia. Sesungguhnya jiwa kami menjadi gembira setiap kali kami melihat Malaysia menuju ketinggian dan kemajuan dalam berbagai-bagai lapangan. Kami berdoa kepada Allah untuk Malaysia, rakyat, kerajaan dan Rajanya; semoga Allah mengekalkan kepada mereka jalan pembangunan dan kemurahan, ikatan dan persaudaraan.

Namun begitu, kami bercita-cita supaya ufuk yang melewati keterbukaan pendidikan dan ekonomi, sosial dan keilmuan, turut merangkumi keterbukaan politik. Begitu juga, agar Kerajaan Malaysia tidak memandang kepada pihak yang membangkangnya sebagaimana pandangan negara-negara Dunia Ketiga. Pembangkang merupakan satu bahagian utama dari komponen negara dalam sistem demokrasi. Ia merupakan teras keamanan demi memelihara kesatuan negara dan kestabilannya, selain supaya para pemuda tidak pergi kepada pemikiran yang melampau dan aliran ekstremisme.

Saya berkata demikian, berdasarkan apa yang sedang dilalui saudara dan sahabat kami, yang dimuliakan Anwar Ibrahim. Beliau telah berdiri dengan peranan yang hebat, hasil yang besar dan usaha yang baik, yang mana negara Malaysia dan seluruh rakyatnya telah memperoleh manfaat dari usaha itu.

Sebagaimana manusia lain, saya mengikuti tuduhan yang aneh terhadap Anwar. Tuduhan itu tidak selari dengan usianya, akhlak, kehidupan beragama, sejarah dan kedudukannya. Demikian juga situasi dan kepelikan di sekelilingnya. Beliau telah dibuktikan tidak bersalah dalam satu penghakiman, kemudian dihukum bersalah dalam satu penghakiman terakhir, hal tersebut berlaku setelah tiada bukti dan telah berlalu satu tempoh yang tidak mungkin boleh dibuktikan lagi.

Sesungguhnya saya mengenali Anwar Ibrahim sewaktu beliau pada awal usia mudanya, bangun menentang pemerintahan yang lalu dan kemudian memimpin belia Malaysia (Angkatan Belia Islam Malaysia (ABIM)). Kemudian kami mengenalinya ketika beliau dipenjara angkara penentangannya (terhadap kerajaan) dan kami mengenalinya selepas beliau dibebaskan dari penjara dan menyertai UMNO. Beliau memimpin beberapa Kementerian, sehingga menjadi orang nombor dua di dalam parti dan kerajaan.

Anwar Ibrahim banyak kali menjemput saya dalam merapatkan (hubungan) antara Parti Islam dan UMNO, saya menyambutnya, kerana saya menyeru kepada kekuatan, kesatuan dan jalan yang lurus buat Malaysia. Saya bersama-sama Anwar Ibrahim saling bekerjasama dalam membangunkan Universiti Islam Antarabangsa Malaysia (UIAM), yang mana tertegak atas dasar integrasi ilmu wahyu, sains dan kemanusiaan.

Saya mengenalinya semasa beliau sedang bersinar di Malaysia, dunia Arab dan di Barat, ketika itu beliau merupakan Timbalan Perdana Menteri dan Menteri Kewangan Malaysia. Beliau merupakan salah seorang pemimpin terhebat Malaysia di era ini, salah seorang yang menyumbang kepada kebangkitan negara. Dunia pada masa itu menantinya untuk menjadi Perdana Menteri, pemimpin Malaysia bagi era baru, (namun ia tidak berlaku) angkara kerosakan politik yang menimpa kita.

Saya menganggapnya sebagai seorang Muslim yang benar, mukmin yang istiqamah, menunaikan kewajipan, menjauhi dosa-dosa besar dan perbuatan yang haram. Beliau beramal untuk kemuliaan agamanya, ketinggian negara dan khidmat kepada rakyatnya. Allah lah yang layak menilainya, saya tidak layak menilainya di hadapan Allah.

Hari ini, Anwar Ibrahim merupakan satu-satunya orang politik yang telah dan sedang ditimpa dengan kes-kes yang meragukan, dan beliau dipenjara satu demi satu. Kalau saya meragui akan perbuatannya pada apa yang dituduh, pasti saya tidak menulis seperti apa yang ditulis sekarang.

Sebenarnya, saya boleh untuk berdiam dari apa yang sedang dideritai Anwar Ibrahim di penjara. Namun pengiktirafan kepada beliau, pengetahuan akannya dan kejujurannya, selain kerana nasihat ikhlas daripada saya kepada rakyat dan kerajaan Malaysia; (semua itu) menghalang saya untuk tidak berpihak dari topik ini.

Bahkan itu mewajibkan saya untuk menyampaikan seruan kepada Duli Yang Maha Mulia, Yang Dipertuan Agong, Sultan Abdul Halim. Demikian juga kepada Yang Amat Berhormat Dato’ Sri Mohd Najib Tun Abdul Razak; Perdana Menteri Malaysia, supaya memberikan pengampunan kepada Anwar Ibrahim. Lebih-lebih lagi isu ini tidak berlaku pada zaman Perdana Menteri sekarang; (PM sekarang) seorang yang saya telah temui dan berutus surat dengannya, saya membantunya dan saya telah menjaga hubungan dengannya. Saya mengiranya dengan izin Allah akan menyambut seruan ini.

Saya menyeru agar kita menutup episod lalu yang mana ia menyakitkan negara Malaysia dan para pimpinannya. Demi Allah, sesungguhnya saya sangat ingin menyatukan rakyat negara Malaysia, bahkan menyatukan seluruh umat Islam.

Dan sesungguhnya agama Islam ini ialah agama kamu, agama yang satu asas pokoknya, dan Akulah Tuhan kamu; maka bertaqwalah kamu kepadaKu.
(Al-Mukminun: 52)
“Dan berpegang teguhlah kamu sekalian kepada tali Allah (agama Islam), dan janganlah kamu bercerai-berai…”
(Al-i-’Imran: 103)
“… dan janganlah kamu berbantah-bantahan; kalau tidak nescaya kamu menjadi lemah semangat dan hilang kekuatan kamu, dan sabarlah (menghadapi segala kesukaran dengan cekal hati); sesungguhnya Allah beserta orang-orang yang sabar.”
(Al-Anfal: 46)

Ya Allah, satukan lah suara kami di dalam hidayahMu, hati-hati kami atas ketakwaan padaMu, jiwa-jiwa kami atas kasih sayangMu, dan (satukan) azam-azam kami untuk meneruskan kebaikan dan sebaik-baik amal. Amin.
Yusuf al-Qaradawi
Pengerusi, Kesatuan Ulama Sedunia

From Islamic finance to Muslim lifestyle

From Islamic finance to Muslim lifestyle

Rushdi Siddiqui Available at: http://www.themalaysianinsider.com/opinion/rushdi-siddiqui/article/from-islamic-finance-to-muslim-lifestyle

Rushdi believes that a change AGENT must tell the truth to a benevolent dictator, religious hardliner, and compassionately connect with youth and have nots.

Published: 7 July 2015

Only when you leave, can you arrive.

Colleagues have asked why I have “left” Islamic FINANCE after 15 years leading teams at DOW JONES INDEXES and Thomson Reuters?

It’s not about leaving, but about expanding my understanding about “have-not” Muslim needs.

Islamic FINANCE has reached only 38 million out of two billion million Muslims (Ernst & Young) in 40 years, and it’s more about the bankable and those with collateral.
Yes, Islamic finance is only the “grease” for the economy and not the economy.

In taking a step back and looking at the landscape, there was a light-bulb moment few years ago that something was missing in ACTION (MIA).

The original vision of the founders of Islamic banking, from Prince Faisal of DMI to Saleh Kamel of Albaraka to Saeed Lootah of Dubai Islamic Bank, was about FINANCIAL inclusion of the non-bankable. Otherwise, what’s the difference with conventional banking?

By non-bankable, I include the youth, say, under age of 30. They want ACCESS to risk capital to build a prototype of their idea, or finish building or start marketing their prototype.

So, the question becomes, what has Islamic BANKING AND FINANCE done for the poor versus the bankable, and what has it done for young entrepreneurs?

Today, sukuk and murabaha, alter ego of Islamic banking, are not FUNDING young people with ideas or poor people with Grameen bank like opportunities. (Note: Bangladesh’s Grameen bank is not an Islamic bank, as its imputed INTEREST RATES are above market rates.)

Furthermore, lets not confuse Islamic PRIVATE EQUITY (PE), linked to buyout of established companies via compliant structures, to Islamic venture capital, which exists more at conferences than in reality.

Finally, the sovereign wealth funds (SWFs) in the Muslim countries, like the largest in the Muslim world, ADIA in Abu Dhabi, have not yet invested in start-ups, even though the latter is an important ASSET class for a diversified portfolio.

Zilzar

The vision of Zilzar is about being a benefit-driven corporation, and not a for-profit only or non-profit only.

A benefit corporation is beyond CSR, SRI, and ESG, it’s about identifying the stakeholders in its entire ecosystem and establishing systemic linkages that provides synergistic benefits (connectivity).

There are other definitions, but we have customised it based upon how and where we see gaps in the Muslim lifestyle marketplace.

The gaps we have identified can be said to be the backbone of the Islamic digital economy.

The digital economy is the future needing blue-printing today, as the actual Muslim economies, mostly COMMODITY based, have not uplifted the lives, lifestyles or living of local people, ex outliers of select GCC countries.

Can we do more? Yes, we must do more, today!

P2P

The biggest problem in the Muslim world is not politics (democracy), religious differences (Shia and Sunni), or corruption (Transparency International’s low ranking), but the plight of micro-enterprises and SMEs.

These are the backbone of any country, emerging or developed, as they provide the majority of employment. Yet, access to FINANCING, be it conventional or risk-averse Islamic, is just not there or very difficult to tap.

Banks and SMEs do not fit seamlessly with each other today. The alleged challenges banks encounter include lack of interest, lack of customized interest rates for borrowers, underwriting costs are high, approval PROCESS time consuming, etc.

Thus, a matching opportunity has opened, called, ‘peer-to-peer’ (P2P) lending between borrowers and INVESTORS on-line.

From the website of Lending Club:

‘Lending Club is the world’s largest online marketplace connecting borrowers and investors. We’re transforming the banking system to make credit more affordable and investing more rewarding. We operate at a lower cost than traditional bank lending programs and pass the savings on to borrowers in the form of lower rates and to investors in the form of solid RETURNS.’

Islamic P2P lending does exist, for example http://www.liwwa.com “connects small businesses in need of capital with people who want to invest. Fast and inexpensive asset-financing for small businesses”.

But, to get greater traction, it’s a function of awareness, and we hope embed one of the P2P players we are having conversations with onto Zilzar platform for the benefit of our vendors. However, there are still regulatory issues to be addressed.

Equity crowd funding

From the website of http://www.syndicateroom.com:

“Equity crowd-funding is the name given to the process whereby people (the ‘crowd’) invest in an unlisted company (a company that is not listed on a stock market) in exchange for shares in that company. A shareholder has partial ownership of a company and stands to profit should the company do well. The opposite is also true, so if the company fails investors can lose some, or all, of their investment.”

Thus, equity crowd funding is people’s capitalism with the essence of Islamic finance, risk sharing. For example, Cairo based http://www.shekra.com was the world’s first (Islamic) crowd funding platform, and its has funded companies likes Nofoos, Minbetna, Optimizer, and others in Egypt.

(Full disclosure, I own small percent of Shekra and sit on the board of advisors. We have embedded Shekra onto Zilzar platform, but it has not received approval from Malaysia’s Securities Commission to do business as of yet.)

There are regulatory issues that need to be addressed to protect the interest of the small investors, but best in class regulations from the west exist and can be customised and adopted.

Thus, equity crowd FUNDING presents an interesting opportunity in the Muslim world to (1) provide risk taking capital (2) to young entrepreneurs for (3) building prototypes on ideas or finish building prototypes.

It may be just be the spark to bypass the non-cooperative banking sector, expand stakeholders in the CAPITAL MARKETS and grow an equity culture, a vital element in building a knowledge base economy.

Mobile to mobile (M2M)

Is M2M the electronic version of Hawala?

According to Investopedia website:

“Hawaladars, or Hawala dealers, arrange money transfers that are often backed only by trust, family connections or regional relationships. Hawala originated in South Asia during ancient times, and is used throughout the world today, particularly in the Islamic community as an alternative means of conducting FUNDS transfers. Hawala is frequently referred to as underground banking, which is a misnomer because Hawala services often operate openly and legitimately.”

According to the Thomson Reuters/Dinarstandard study on the Islamic economy, as of 2012, Muslims had 1.3 billion mobile phones or 21% of total, hence, massive opportunity for FINANCIAL inclusion via mobile phones.

For example, from the Economist magazine, Why does Kenya lead the world in mobile money? May 27, 2013:

“Paying for a taxi ride using your mobile phone is easier in Nairobi than it is in New York, thanks to Kenya’s world-leading mobile-money system, M-Pesa.

“Launched in 2007 by Safaricom, the country’s largest mobile-network operator, it is now used by over 17 million Kenyans, equivalent to more than two-thirds of the adult population; around 25% of the country’s gross national product flows through it. M-Pesa lets people transfer CASH using their phones, and is by far the most successful scheme of its type on earth.

“M-Pesa has since been extended to offer loans and SAVINGS products, and can also be used to disburse salaries or pay bills… One study found that in rural Kenyan households that adopted M-Pesa, incomes increased by 5-30%. In addition, the availability of a reliable mobile-payments platform has spawned a host of start-ups in Nairobi, whose business models build on M-Pesa’s foundations…’

M2M has been adopted by a number of Muslim countries, like Afghanistan, but there are a number of challenges, including MONEY laundering.

I would take it one step further, we have yet to see an Islamic payment gateway for e-commerce TRANSACTIONS for, say, halal products, hence, a major opportunity exists. The user would like to have an end-to-end halal solution.

Lessons from Etsy

From Linkedin influencer Bernard Marr:

“Etsy – the online marketplace which connects sellers of handmade goods and traditional craft products with buyers from around the world…

Over the past decade it has risen to become a leader in the market for peer-to-peer TRADING, enabling small-scale manufacturers and retailers make millions of sales each month.”

Now, imagine customer-to-customer (C2C) getting FINANCING via P2P or equity crowd funding and getting paid by M2M transfers. We are trying to do “etsy” with our Made in Penang and Made in Mindanao Powered By Zilzar campaign.

Conclusion

Financial inclusion is the tide that lifts all boats because of the network effect. Islamic FINANCE has yet been able to bring about financial inclusion to the Muslim masses.

A solution for inclusion is access to markets combined with innovative FINANCE, trusted platform, and technology.

What are you doing for inclusion for the masses? – July 7, 2015.

– See more at: http://www.themalaysianinsider.com/opinion/rushdi-siddiqui/article/from-islamic-finance-to-muslim-lifestyle#sthash.XzK3IkOO.dpuf

Russia looks to replace Western loans with Islamic finance

Russia looks to replace Western loans with Islamic finance

June 18, 2015 Alexei Lossan, RBTH
Available at: http://rbth.com/business/2015/06/18/russia_looks_to_replace_western_loans_with_islamic_finance_46993.html

Islamic FINANCE will help Russian companies make up for their credit shortage, which was in large part caused by the cooling of relations between Russia and the West. Russian banks are already showing interest in this alternative form of credit.

Islamic FINANCE could provide short-term relief to Russian companies.

Islamic finance could help Russian companies hit by Western sanctions to gain ACCESS to credit, Rustam Minnikhanov, President of the predominantly Muslim-populated Russian republic of Tatarstan, said at the Kazan Summit Forum.
“Muslim countries did not join attempts to isolate our country on the international arena, and the latest events in the world economy have shown that Islamic BANKS help counter world crises and supplement the world financial system,” Minnikhanov said. He added that this Islamic finance could not completely substitute Western credit, but instead could provide Russian companies with an important financial instrument. According to IMF’s latest calculations, by the end of 2015 the volume of Islamic finance around the world will amount to $3.4 trillion.

An alternative scheme

“Against the backdrop of world crises, the importance of Islamic finance only increases, because all the operations in this scheme are backed up by real money, while INVESTMENTS become secure and do not carry any risks,” said Qatar’s Undersecretary of Economy and Commerce Sultan Al-Khater. According to the requirements of Islamic banking, it is prohibited to charge interest while lending, while receiving credit essentially implies exchanging one commodity for another.
Ahmad Mohamed Ali Al-Madani, President of the Islamic Development Bank, said, “Islamic finance is by nature tied to real economic activity, which is why such a scheme allows the optimization of the internal resources.” He added, “The concept of dividing risk in Islamic banking stimulates healthy financial practices. In Islamic finance, the transactions are tied to real INVESTMENTS, which helps avoid speculation and the instability related to it.”
Al-Madani suggested that Tatarstan could be promoted as “an Islamic finance hub in Russia.”

Russian banks open to Islamic finance

According to Rustam Minnikhanov, Russian banks, including the country’s largest bank Sberbank, are currently showing an interest in Islamic FINANCE. One of the advocates of the development of Islamic BANKING in Russia is the head of Sberbank, former Russian Minister of Economic Development, German Gref.
“There are still problems with taxation and the lack of qualified personnel, but with the help of our colleagues in the Russian government, we will be able to make this PROCESS more dynamic,” Minnikhanov said. One example is Tatarstan’s largest bank, AK Bark, which has already attracted financing in accordance with Sharia regulations.
In January 2015, the local Alliance Insurance Company started selling an Islamic insurance product called Khalal INVEST.
Minnikhanov also told RBTH that the development of Islamic banking in Russia should be done on a federal level and that there is no talk of creating a unique financial zone in Tatarstan. “Today the KazanSummit is a platform that must change the attitude that Russians and Russian regions have towards Islamic finance, and this is our mission,” he said.
Elvira Nabiullina, Chairwoman of the Central Bank of Russia, met Ahmad Mohamed Ali Al-Madani this week.

Regards
Zulkifli Hasan

Islamic Finance as the Way Ahead for the Socio-economic Empowerment of the Global Ummah

Islamic Finance as the Way Ahead for the Socio-economic Empowerment of the Global Ummah

By Tengku Razaleigh Hamzah, former chairman of the World BANK and IMF, former chairman of Asian Development Bank, former chairman of Islamic Development Bank and the Founding Chairman and Chief Executive of Petronas

Available at: http://internationalbanker.com/finance/islamic-finance-as-the-way-ahead-for-the-socio-economic-empowerment-of-the-global-ummah/

In this article I will be touching on certain issues that I consider pertinent and relevant to our efforts to further the global cause and development of Islamic finance and banking. Islamic economics, and thus Islamic finance, is based on the philosophy of justice, equity and morality. This is reflected by the overarching and core Shari’ah principles governing or underlying its features and operations, the most important of which are as follows:

prohibition of riba (usury), which includes interest on debt in any form,
prohibition or avoidance of gharar (uncertainty or ambiguity in contracts),
adherence to risk-sharing and reward-sharing, i.e. profit- and loss-sharing (PLS),
ban on immoral business activities and INVESTMENTS (such as production and sale of liquour, gambling, hoarding, pornography),
sanctity of contracts,
protection of ownership rights,
prohibition on dishonesty and deceptive practices,
discouragement of concentration of wealth in a few hands,
redistribution of wealth by way of zakat (alms tax).

The overall mission of Islamic finance is the socio-economic and moral well-being of the whole community. This means that its orientation and ethos differ, or should differ, from those of conventional BANKS. While the performance of commercial banks is solely measured on financial criteria, the most important of which is the profit criterion, the performance of Islamic banks ought to be based on a combination of social and financial criteria. The focus should never be solely on profitability but also on social benefits to the community. Adherence to this philosophy dictates that Islamic banks should not surrender themselves to the pressures of following the profit-maximization practices of conventional banking, such as getting rid of unprofitable but socially beneficial lines of business or downsizing the workforce to cut costs and thus contributing to unemployment, or shying away from microfinance for the empowerment of the underclass.

Proponents and practitioners of Islamic finance must always be mindful that the raison d’etre of Islamic economics is justice, equity and the socio-economic well-being of the whole community. They must not sacrifice this very important principle just for the sake of increasing their market SHAREor for easing the entry or expansion of their operations into the global financial system, which still very much functions and operates according to the rules, practices and ethos of conventional banking. In the long-term, the survival and growth of Islamic finance depends on its integrity and reputation.

Islamic banking and finance currently constitutes only a small portion of the global economy, although statistical data INDICATES that it is growing. An estimate has put the total assets held by Islamic banks and finance institutions globally at around $1 trillion in 2010 then increasing to $1.6 trillion currently, representing between 1 to 2 percent of the entire assets in the global economy and growing at between 15 to 20 percent annually. Some analysts take the VIEW that Islamic banks and financial institutions are more resilient than their conventional counterparts, better able to minimize or mitigate the effects of the most recent financial crisis of 2007-2008 and the global economic downturn that followed. Of course, this resilience is attributable to the inherent features and characteristics of Islamic finance itself, in view of its adherence to the Shari’ah principles, which I briefly mentioned. However, we should not fall prey to over-optimism and entertain the illusion that Islamic banking and finance is immune from the effects of a global recession, or, indeed, of any great shift or turn in the forces and currents that shape the world— culturally, politically, socially or economically.

For this reason, we must continuously make the effort to monitor and understand the happenings in the world as well as the apparent and hidden forces giving rise to them. These include first, the civilizational crisis today with the possibility of collapse and general chaos, as a result of the interplay of various seemingly intractable phenomena—climate change, global environmental crisis, depletion of natural resources, loss of biodiversity and extinction of species, economic instability, wars and serious humanitarian crises, proliferation of nuclear weapons, hunger and famine, widespread social unrest, and many more—all of which are largely attributable to human follies and misdeeds (ghafla and fasad in the language of Islam). Many factors have been advanced to identify the root cause of this civilizational malaise.

The second is globalization: in the last few decades, the world has become increasingly integrated in all spheres of life. This globalization is not an accident of history. It is underpinned by a combination of sub-processes and policies—particularly liberalization, privatization and deregulation—that are consciously propagated and pursued to promote free TRADE and level playing fields for all economic agents. High technology, particularly the Internet, and modern means of transportation enhance the speed and efficiency of the globalizing process. The opening of national markets to foreign competition, through a liberalized and deregulated environment, diminishes the ability and power of governments and market regulators. In this sense, the market is playing the supervisory role in reverse. Governments everywhere are under the constant surveillance and radar of international rating agencies and market analysts. Thus globalization is both a boon and a curse. Whether it works for us or against us depends to a large degree on our own wisdom, on the policies and strategies we put in place.

The third reality is the shift from the real economy to the financial economy; some observers refer to this phenomenon as “financialization”, whereby investors no longer look for dividends but behave more like gamblers speculating and betting on price movements, and by extension even on the collapse of national economies. This development magnifies the dangers and risks of speculation that many economists fear and is abhorrent to the Islamic financial system.

Finally, the rise of the global Occupy movement and the Arab Spring uprisings in the wake of the financial crisis of 2007–2008. They signify a new wave of consciousness and desire for change in the existing political, social and economic order and arrangements that benefit a few at the expense of many. The acceptance of capitalism as the economic system by the former socialist states does not negate the amorality of the system in which consumers are open to exploitation. It was the natural choice since capitalism was the order of the day, and it would have been odd for them to have done otherwise. Thus it is not surprising that the annual report put out by the World Economic Forum in Davos in each of the last three years identifies income inequality as the number one global risk.

It is worth reiterating that the Islamic economic system is neither capitalistic nor socialistic in nature. It is a system that has been provided by the Quran and the Sunnah of the Holy Prophet Muhammad SAW. It is the ethical system that operates on the basis of shared risk and profit to the lender and the borrower. Similarly, Islam differentiates between the production of goods and services, the science of economics as it were, and the manner in which they are distributed, or the economic system. The science of economics is universal and can be absolute, irrespective of creed and beliefs. The economic system, on the other hand, elaborates on the manner in which wealth is to be acquired, distributed and disposed of. It is, therefore, the ideal system that is not encumbered by the drawbacks of capitalism and socialism. This is the subject at hand and the crux of the matter; and the Islamic economic system has laid down the rules based on the Shari’ah.

The fundamental of the Islamic economic system lies in the belief that man is the representative or trustee of Allah SWT, who is the real owner of the heavens and the earth and everything in the universe. It is man’s right to apply resources for his existence, but it is not limitless. And divine wisdom dictates that man should not hoard his wealth as if it belongs to him absolutely, while denying the use of such wealth by others. It is for this reason that sadaqah and zakat were instituted, and these serve as the platform for the equitable distribution of wealth. It is also timely to note the contrasting differences between interest or usury or riba of the capitalist system and sadaqah and zakat. They are complete opposites of each other. While sadaqah and zakat channel wealth from the rich to the poor, interest channels wealth away from the poor to the rich. It denounces miserliness, greed, extravagance and unnecessary wastage. It is in this context that we must situate Islamic banking and finance.

There are good reasons for believing in a bright future for Islamic finance. As noted by Dr. Mahmoud Moheildin, the managing director at the World Bank, there is a growing interest in financial instruments that emphasize risk-sharing in the aftermath of the recent financial crisis. Islamic finance’s “underlying tenets of an ethical and just financial system that strengthens real economy sectors has tremendous global relevance. A large client base exists that is sensitive to doing business with socially responsible institutions” (“State of the Global Islamic Economy”, a 2013 report produced by Thomson Reuters). According to a survey conducted by Thomson Reuters, the demand for sukuk is expected to reach $421 billion by 2016 from $200 billion in 2012. In his inaugural address at the World Islamic Economic Forum (WIEF) in London in October 2013, the British prime minister, David Cameron, said he wants London to stand alongside Dubai and Kuala Lumpur as one of the leading hubs for Islamic finance. He also announced the plan of the London Stock Exchange to launch an Islamic Market Index. This is some of the good news that point to the wide open road for Islamic finance in the years to come.

The success of Islamic finance requires the commitment and support of many quarters, especially the government, which possesses the wherewithal to put in place the requisite regulatory framework and the policies to create a conducive environment and to allocate seed funds and resources. The experience of Malaysia is a good case in point. With a modest beginning in 1963 with the launching of Tabung Haji (Pilgrimage Fund), the brainchild of a pre-eminent Malaysian economist, Royal Professor Ungku A. Aziz—currently with assets of $10.4 billion and 8.2 million depositors—Islamic banking and finance in Malaysia has grown by leaps and bounds and is now internationally acknowledged as a leading success story. Value-wise, total Malaysian Islamic banking assets currently stand at about $168.4 billion, representing more than 10 percent of the global total, while our sukuk issuance accounts for more than 60 percent of the global Islamic bond market. Regulatory-wise, Malaysia is one of the 30 countries today to have standalone legislation and regulation governing Islamic banking and finance. Institution-wise, Malaysia has 21 full-fledged Islamic banks, the highest number worldwide, and 16 takaful/re-takaful operators, the third highest in the world behind Saudi Arabia, with 23 operators, and Indonesia, with 22 operators. In terms of supporting infrastructure, it has a full-functioning national Shariah Advisory Council, established in 1997 by Bank Negara Malaysia, the Malaysian central bank; the International Centre for Education in Islamic Finance (INCEIF), a university established by Bank Negara in 2005 to provide education in Islamic finance up to the doctorate level; and, of course, the Islamic Financial Services Board (IFSB), another initiative of Bank Negara inaugurated in 2002 as a standard-setting body of regulatory and supervisory agencies dedicated to ensuring the soundness and stability of the Islamic banking and finance industry.

However, for Islamic finance to realize its full potential and respond to the increasing demand for ethical, equitable, stable and risk-resistant financial products and services, serious efforts must be undertaken to address the challenges, weaknesses and constraints existing and their potential at all levels and in all aspects of implementation, operation and practice. Many proponents and thinkers in Islamic finance—including Dr. Umer Chapra, Dr. Mahmoud Mohieldin, Dr. Abbas Mirakhor, Professor Hossein Askari, Dr. Iraj Toutounchian and Mr. Daud Vicary Abdullah, just to name a few—have produced insightful analyses and have come up with substantive and useful suggestions relating to this very important issue; these include improving and strengthening regulatory framework and supervisory oversight, promoting standardization both domestic and across jurisdictions, rebalancing tax treatment, ensuring adequate liquidity, establishing sound best-management practices, establishing cooperative mechanisms to respond to crises occurring at institution and industry levels, ensuring adequate supply of trained personnel, and raising the level of understanding of Islamic banking and finance among judges, arbitrators and industry-connected professionals (lawyers, accountants, etc).

The efforts and measures undertaken in enhancing Islamic banking and finance should not focus merely on the quantitative aspect but must also encompass the qualitative as well. Firstly and most importantly is the need to strictly adhere to the core Shari’ah principles underpinning Islamic finance and resist the temptation to circumvent them, for example, by resorting to so-called creative financial engineering or using ambiguous or deceptive words or turn of phrases. Doing so would not only be wrong in the sight of the Shari’ah but also would compromise the integrity of Islamic finance itself, and this would ultimately reduce public confidence in the industry and damage its reputation. Secondly, we should give special priority to the socio-economic mission embedded within the philosophy of Islamic finance to realize distributive justice by extending the reach of services to the disadvantaged sectors of the community through micro-finance, qard al-hasan (good loan or loan without interest), zakat, sadaqat and waqf and so on.

In the early development of Islamic finance and banking, there was a tendency to not design Islamic finance products to the strictest of Islamic principles and standards. It was inevitable then as the understanding and measurement of the economic and finance systems were based on the conventional system. This being the case and given the lingering tendency, although somewhat infrequent now, to continue measuring the mechanics of Islamic finance using conventional indicators, I think a relook at the system with a VIEW to refining it is timely and opportune. In this regard, it does not hurt the system if we were to revisit what constitutes halal and haram in Islamic banking and finance. This, I SUBMIT, is part of the continuous quality-assurance exercise that we have to go through to keep our practice true to the dictates of the Shari’ah.

In the mission to empower the global ummah economically, it is now quite obvious that the system of choice is the Islamic economic system. To undertake this game-changing transformation of the global ummah requires the financial wherewithal to provide the substantial FUNDING. In this regard, the success of Tabung Haji (Pilgrim’s Fund) in Malaysia, the international waqaf movement and the growth of Islamic cooperatives could be replicated throughout the Muslim world to help in developing that financial muscle and strength. All that is required is the political will to make that replication a reality. With the right type of cooperation, and with the participation of such bodies as the Islamic Development BANK and the Organisation of the Islamic Conference, which have the necessary technical expertise, the empowerment of the global ummah would be a reality. I strongly believe that such a development as this could provide the platform and the basis for the universal application of the Islamic economic system together with the complementary political and legal systems.

UAE banks discuss plan for centralised Islamic finance board

UAE banks discuss plan for centralised Islamic finance board

Available at: http://www.reuters.com/article/2015/05/24/emirates-islam-finance-idUSL5N0YF05320150524

The United Arab Emirates’ BANK industry association has discussed a proposal to create a centralised sharia board that would monitor Islamic banking, which could spur the growth of the industry.

The central bank had proposed setting up a Higher Sharia Authority that would complement and oversee the work of sharia boards at individual Islamic banks. This proposal was addressed at a recent meeting of the UAE Banks Federation, the association said on Sunday.

“Representatives of the Federation’s Islamic banking committee are working closely with the Central Bank on guidelines for the establishment of the NEW body that will help to ensure consistency amongst all UAE Islamic banks in their development of new structures and products,” it said.

Details of the timing and structure of the new entity were not specified.

Sharia boards are groups of scholars who rule on whether financial instruments and activities are religiously permissible. Gulf countries have in the past tended to follow a loose, decentralised model of Islamic FINANCE regulation, leaving much of it to sharia boards at individual banks and finance firms.

But the rulings of different boards can be inconsistent or leave scholars open to suggestions of conflicts of interest, increasing uncertainty among investors and slowing growth.

So in recent months some countries, including Oman, Pakistan, Morocco and Nigeria, have followed Malaysia’s example by moving towards a centralised board that can impose its will nationally.

The UAE Banks Federation, which represents 50 banks, also said on Sunday that it had approved the appointment of a new, independent monitoring agency that would help to implement its code of conduct for member institutions. It did not give details.

(Reporting by Stanley Carvalho; EDITING by Andrew Torchia)