Entries in English and Malay (Bahasa Melayu)

Monday, 23 April 2012

Islamic banking grows 10 to 15% annually

(MENAFN - Arab News) Islamic banking and finance, with a total asset of $1.4 trillion and more than 1,000 institutions operating in many countries worldwide is all set for a big take off, says Professor Khurshid Ahmad, chairman of the Islamic Foundation UK and the Institute of Policy Studies in Pakistan and author of several books on the topic.

Speaking to Arab News after giving a lecture on "Global economic crisis and the role of Islamic Economics" at the Islamic Development Bank headquarters here, Ahmad said Islamic banking and finance makes an annual growth of 10 to 15 percent when conventional banks make less than one percent.

"According to an IMF study, the institutions that were least affected by the global financial crisis were Islamic banks because they engage mainly in asset-based financing," said Ahmad, who is a winner of King Faisal International Prize and IDB Prize.

Speaking about challenges, he emphasized the importance of Islamic banks to be shifted from a Shariah-compliant position to a Shariah-based position in order to move from a debt-based economy to a risk-sharing and equity-based participatory economy.

Ahmad also urged Muslim countries to reduce their dependence on foreign financial institutions like World Bank and International Monetary Fund. "I do not know of a single country in the world that has made progress after receiving loans from these institutions," he said, adding that a number of economists have reached the same opinion after conducting studies on 40 to 48 cases.

He said Muslim countries should make use of their natural resources for the development of the Ummah, and establish good governance with accountability and fair participation of people. "This is the only way to achieve success... and we should learn from the experiences of China, Brazil, South Africa and Vietnam, which are making fast growth using their own resources."

Transparency is another key element Islamic banks have to focus on, Ahmad said, adding that they should be more open and their accounts should be Shariah-audited to win public confidence. "If there are any failures they should not hide them and make every effort to correct them in order to build trust. By openness they will not be revealing any secrets but they will increase their credibility while their market will be expanding," he added.

The Islamic Research and Training Institute (IRTI), an affiliate of IDB group invited Prof. Ahmad to deliver this year's IDB Prize Lecture commemorating the 2011 Award of the IDB Prize to the Islamic Foundation for its significant "Contribution to Islamic Economics."

Mohammed Azmi Omar, director general of IRTI, earlier welcomed Ahmad and said 30 individuals and four institutions have won IDB Prize since it was instituted in 1988. Abdelkader Chachi of IRTI gave a presentation on Islamic Foundation.

In his keynote speech, Ahmad spoke on the crisis of capitalism that began with the burst of the housing bubble in the last quarter of 2007. "The crisis persists despite desperate efforts to save the system," he pointed out. European economies were shaken to their roots and after private sector bailouts, bailout of governments began with fire-fighting operations from the better-off economies. The euro that had emerged as an alternative to the Dollar crawled into the cesspool of crisis. The very future of the euro-zone has become problematic, he pointed out.

"This crisis is no longer confined to the citadels of financial and economic power. After threatening the infrastructure, the tsunami has now begun to sweep the masses. The result is an explosive increase in the army of the unemployed, the poor and the deprived, something that is tearing the very fabric of society. Standards of living have begun to decline. Health and education costs are escalating," he said.

Ahmad said the "Occupy Wall Street Movement" is not merely a New York phenomenon. It is growing into a global movement to seek justice for the 99 percent who are presently at the mercy of the 1 percent who control, manage and maneuver the economy and state policies. The income of this top 1 percent in the United States has increased over the last thirty years from 10 percent of the national income to 23.5 percent, while the real income of the poorest 20 percent has gone down over this period.

Poor are becoming poorer while the rich are getting richer by getting huge bonuses and pay rises even in the midst of a serious financial and human crisis, Ahmad said. The "Occupy Wall Street Movement" is a rebellion against the injustices of capitalism. "This is the context in which we propose to have a fresh look at the nature and significance of Islamic economics, and reflect on the need for an alternate approach to effectively and judiciously face the economic challenges highlighted by the contemporary global crisis of capitalism, which has failed to solve the economic problems of mankind," he said.

Referring to the negative impact of global economic crisis, Ahmad said: "By October 2009, within the first year of the advent of the current crisis, the IMF reported that the global loans of the banking sector alone were to the tune of $3.6 trillion. From the start of 2008 to the opening of 2009, the crisis knocked some $30 trillion off the value of global shares and $11 trillion off the value of homes in the United States. At their worst, these losses amounted to around 75 percent of world GDP."

Prof. Ahmad said many individuals within the Western academic community, who are deeply disturbed over the fatal flaws of capitalism, are searching for new approaches and alternatives in their quest for a just world order. "Islamic Economics represents a new approach to economics and the problems of human society. It is based on a distinct worldview and a vision of man, society and history," he explained.

He continued: "It is not possible to juxtapose the Islamic economic approach with any other "isms". It is, however, possible for various "isms" and Islam to co-exist, compete, cooperate and as such contribute toward the betterment of human race. That is the path toward which deeper reflection on the contemporary economic crisis and an honest and objective evaluation of the alternatives available may help mankind to move forward in the right direction."

(Mena Fn.Com / 22 April 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Debating Islamic Finance

Though it was a mere tripartite memorandum of understanding (MOU) between Qatar, Islamic Development Bank (IDB) and the Dallah Al-Baraka Group, but it deserves importantance since it has settled to a large extent a debate on whether the Mega bank, whose idea has been mooted years ago, will ever come to being and who will be its main shareholders.

In fact, two years ago a poll was conducted among those interested in Islamic finance from institutions and individuals to see whether 2010 will see that the Mega Bank to emerge that year, the majority, though modest, did not see it happening.

But the MoU is reversing that trend.

Moreover, the issue of location has been settled and the new Mega Bank will be headquartered in Doha with branches across the Islamic world and whenever the need arises.

The MoU commits the three founders to underwrite half of the proposed $1 billion capital for the Mega Bank.

Two main goals were put for the bank that are funding infrastructure projects in Islamic states and more important work toward standardization of financial products compatible with Islamic Shariah.

During the signing of the MoU in Khartoum on the sidelines of the IDB Group annual meeting recently, IDB President Ahmad Mohamed Ali said the new institution is expected to, "facilitate the establishment financial market amongst the Islamic banks and provide innovative solutions to manage liquidity through generation of assets and launching of an Islamic securities market."

He said "the Mega Islamic Bank comes as an initiative to address the dearth of senior financiers, the absence of the Islamic tools of stock exchange and the absence of market liquidity between Islamic banks."

Aside from the procedural concerns, there are other issues like getting skilled and professional staff given the fact that Islamic finance became a growing industry, where even big conventional banks are having Islamic finance windows to cater for an expanding client base.

According to figures from the Islamic Council, assets of Islamic banks and financial institutions stand currently at $820 billion. And, the total assets operating in line with Islamic Shariah principles would top $1.3 trillion if Islamic windows in conventional banks are also taken into consideration.

That is a huge volume of money and needs more skilled professionals that are more or less in scarcity anyway.

A recent story in the New York Times spoke about a new phenomenon in the Wall Street where young Islamic bankers are trying to combine their professional banking training with spiritual dimension.

It pointed out that six years ago young Muslim bankers set up what they call Muslim Urban Professional as a forum where members can help each other and exchange experiences.

From a membership of some 50, it grew to more than 1, 000 currently.

Interesting enough the story noted for whatever reason clients tend to think religious bankers may have more integrity to a reasonable degree, and that genuine Muslim behavior of not drinking etc may actually work to the favor of Muslims, who stand a chance of being good bankers as well.

However, two more factors have to be borne in mind in discussing Islamic finance.

For one the Arab Spring brought to the scene a clear Islamic orientation that will help shape events in places like Tunis, Egypt, Libya, Yemen and probably Syria for time to come.

In fact with the emergence of the BRIC countries (Brazil, Russia, India and China) religion is taking a growing role and no longer modernism is expanding at the expense of religion as used to be the argument by secularists and thinkers such as Karl Marx, Max Webber and even social scientists in the US such as Walt Rostow.

The other factor is that Islamic finance has been in operation for more than three decades.

The theory has been put to test and there is more than criticism addressed to Islamic finance.

One of those critics Saleh Kamel, chairman of Al-Baraka Group, who was blunt in saying that current Islamic finance practices have to a large degree avoided the true intentions of Islam i.e. utilizing economy to do real work, provide opportunities instead of using money to generate more money.

It even moved to area of derivatives that was to a large degree one of the main reasons behind the financial and economic crises that has engulfed the world major economies for more than four years now.

Kamel, however, is optimistic that the Mega Bank can help address problems faced by Islamic finance by concentrating more on development and work along recognized Islamic tenets for the benefit of the people, not one concerned mainly with the mechanics and see how transaction are Shariah compatible regardless of what they do actually to people.

The Mega Bank may or may not provide answers to problems facing Islamic finance, but it is more important to have more open and transparent debate on its various issues without inhibitions.

(Mena Fn.Com / 22 April 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Latest Posts

Upcoming Events on Islamic Finance, Wealth Management, Business, Management, Motivational

Alfalah Consulting's facebook


Alfalah Consulting is NOT providing any kind of loan to finance project etc and asking for a fee. If you've received any email claiming to be from Alfalah Consulting, offering loan to you, please ignore it or inform us for further actions. Our official email is If you've received an email from, that's NOT from us. Be cautious!