Islamic Economics, Banking and Finance: Historical Perspective and Future Prospects

American Chronicle:Islamic banking and finance had its major beginnings in the year 1975 with the establishment of the Islamic Development Bank. Islamic banking has flourished in various countries since then with Malaysia, Indonesia, UAE, Pakistan and Saudi Arabia being in the forefront.

Islamic banking has also recently done rather well in non-Muslim countries with the reported size of UK Islamic banking overtaking that of majority Muslim countries like Pakistan. Islamic banking assets are thought to be anywhere from 700 billion dollars to 900 billion dollars as of 2009...Read More

Can Islam Save The Economy?

Religion Dispatches, CA :In the midst of a global financial crisis one sector has yet to suffer the fate of the rest. Islamic finance, or Sharia-compliant banking, offers strict moral guidelines for dealing with money. Thus far Dow Jones and others have offered an Islamic Index for tracking these business, but it might be time to get the muftis on the phone.

Governments worldwide are struggling to manage the global financial crisis, with no end to the downturn in sight. But at least so far, one sector has been unscathed: the $1 trillion-and-growing business of Sharia-compliant banking.

That's right, Sharia. The same combination of medieval Islamic law and modern post-colonialism that makes the terrorist clique supposedly so hateful of Western freedoms...Continue Reading

Consider Islamic economics: RS Dy Chairman

NDTV.com, India :Deputy Chairman of Rajya Sabha K Rahman Khan said on Saturday that Islamic economics could be an alternative system to achieve a just and stable economic order amid the ongoing global financial crisis.

"We cannot just say Islamic economics is best in the world. It is one of the alternative systems which can be evolved to achieve a just and stable economic order," Khan said while addressing a seminar on the global economic crisis and relevance of Islamic economics.

"Islamic economics prescribes various sets of rules which is based on the principles of justice and morality," said M Nejatullah Siddiqui, Islamic economist and former research professor at Islamic Centre in King Abdul Aziz University, Jeddah.

"Islamic economics stands for abolition of 'riba' (bank interest) and 'maysir' (gambling-like speculation) in financial dealings as well as a regard for the interest of others in one's pursuit of material gain," he added.

Siddiqui argued that debt-finance coupled with speculative products whose intricacies defy understanding provide ample opportunities to greedy profit-maximising agents to exploit the aspirations of ordinary investors and for goading home owners and consumers into living beyond their means and chasing untenable dreams.

Islamic Economics

:A joint Treasury–FSA consultation on proposals for the legislative framework for the regulation of alternative finance investment bonds, which include sukuk, was launched on December 11 by Economic Secretary to the Treasury, Ian Pearson.
“The Government wants to ensure no one in the UK is denied access to good financial services on account of their religious beliefs.

We value the contribution Islamic finance makes to London’s position as an international financial centre and we want to see this sector continue to grow and prosper in this country.”

Sweden’s Shar‛ah pension fund outperforms market

A Swedish pension fund that abides by Shari‛ah laws has outperformed the Stockholm stock exchange since its launch in October.

The Shari‛ah fund, a part of the Premium Pension Authority's (PPM) fund system, was conceived to give Muslims a chance to have their retirement money grow without being placed in stocks which earned money by charging interest.

As such, the fund doesn’t invest in financial stocks and has thus avoided many of the losses suffered by other investors during the recent financial crisis.
Over the last three months, the fund has performed better than the Stockholm stock exchange, dropping only 20 percent in value, compared to the 28 percent losses suffered by the OMX-index.

Shari‛ah-compliant pensions

The scheme to provide retirement funds for millions who do not already have a company pension is likely to include a special option that would not invest in companies deemed sinful under Islam.

When the Personal Accounts Delivery Authority launches in 2012, as many as 10 million people who do not have a decent occupational pension will become automatically enrolled and made to save a minimum of 4 per cent of their earnings a year, matched by a 3 per cent contribution from their employer and 1 per cent tax relief from the Government.Savers will be able to choose from a range of funds into which their money will be invested, with one option likely to be Shari‛ah-compliant.

Germany not ready for Islamic finance

Despite a huge potential client base, Germany has refused to adapt its legal and tax systems to attract Islamic finance.

However Islamic investment funds based abroad are beginning to make considerable inroads into the property market of Europe’s biggest economy.With some 3.5 million Muslims, mainly of Turkish origin, Germany offers enormous potential demand for banks providing retail Islamic financing, said Zaid el-Mogaddedi, President of the Institute for Islamic Banking and Finance in Frankfurt last month.

However, German banks have been quick to offer products that conform to Islamic Shari‛ah but only outside Germany.German officials are wary of Islamic finance apparently because certain funds are said to be shaky and sometimes lacking in transparency.

Islamic Economics: An Alternative?

ISLAMONLINE:After World financial meltdown had dealt a severe blow to the free market system, economists rushed searching for alternatives that could avoid the pitfalls of Capitalism. Dr. Hussein Shehata, a prominent expert on Islamic financial transactions, argues that Islamic economic system can be a viable alternative. Dr. Hussein Shehata Received his PhD in administrative accounting from Bradford University, the United Kingdom. He works as a financial advisor for numerous financial institutions in the Muslim World.

Signs of the collapse of the world financial system have emerged, causing great panic to people all over the world. Many governments called upon economists and experts to find a way out. Financial institutions and their agents began to think about rescue plans.

Many people rushed to draw their deposits from banks. At the same time, several financial institutions have frozen the process of granting loans to companies and individuals for fear that it might be difficult to take them back.

The drop in the circulation of money among individuals, companies and financial institutions has given rise to a sharp slowdown in the economic activity. As a consequence, debtors have become unable to pay back their debts.

Wall Street meltdown dealt a severe blow to the level of exchanges in money and exchange markets causing indexes to fluctuate. Furthermore, used capacities in companies were decreased due to the decrease in financial flow and the inability to take loans from financial institutions, except at high interest rates with heavy guarantees.

This shortage of financial flow decreased consumption of certain commodities, like cars and real estate sector. The drop in consumption decreases savings, investment projects, and hence increases unemployment which is eerily climb as many companies become bankrupt threatening many employees to lose their jobs.

Causes of the Crisis

Maurice Allais, an expert on world economy and a Nobel Prize laureate in economics, said, “The world economic system is based on some concepts and rules that will be the very cause of its destruction unless treated and rectified quickly.”
In fact, many economists argue that the neo-capitalist world economic system rests on principles that will lead to its ruin.

It can be argued that among the reasons that led to the crisis is the spread of moral economic corruption, such as exploitation, lying, circulation of prejudiced rumors, cheating, monopoly and the engagement of nominal transactions, with no real value. In this way, the wealthy and creditors oppress the poor and debtors who, as a consequence of being unable to bear such oppression anymore or pay back these debts and loans, will grumble and be resentful.

Also, wealth has become a weapon used to dominate and control politics around the world. Money has become the idol the capitalist economy.

Interest-backed banking system inflicts mounting debts on consumers by working within the framework of the system of trading debts, either by selling, buying or brokerage.

The more the interest rate on deposits increases, the more the interest rate on the loans granted to individuals and companies will also increase. Only banks and stockbrokers benefit from this, whereas the debtors, who take loans for consumption or production purposes, bear this heavy burden alone.

Credit card debt inflicts high costs on the consumer, and when one can not pay back his debts, the interest rate is continuously increased. Ultimately, consumer's property will be confiscated in order to guarantee security. This has actually happened to many holders of such credit cards, causing an imbalance of their house budgets.

Indeed, banks impose additional burdens on the borrower who is not able yet to discharge the first loan due to the increasingly higher rate of interest. This is similar to usurers in the pre-Islamic period of Ignorance who would say to a debtor, “Either you repay or augment.”

Furthermore, Stock brokerage firms deceives those in need of loans as they claim high commission payment if there are potential risks, leaving the poor debtors to bear their burden and attributed negative consequences.

Actually, Some economists believe that no real development or wise employment of the means of production could be achieved unless the interest rate is zero. This view was held by Adam Smith, the Father of modern economics.

Furthermore, economists think that the alternative is based on participating in profit and loss, because it brings about stability and security. In addition, interest-based system results in the accumulation of wealth in the hands of few people who will thus be in control of the world’s fortunes.

In addition, The world financial system rests on the basis of the financial derivatives system that depends mainly on nominal transactions, with no real exchanges of goods or services. What is even worse is that most of these transactions are based on credits taken from banks in the form of loans, and when things develop unfavorably all that collapses triggering the financial crisis.

Islamic Economics

Maurice Allais, an expert on world economy and a Nobel Prize laureate in economics, said, “The world economic system is based on some concepts and rules that will be the very cause of its destruction unless treated and rectified quickly.”
In fact, many economists argue that the neo-capitalist world economic system rests on principles that will lead to its ruin.

It can be argued that among the reasons that led to the crisis is the spread of moral economic corruption, such as exploitation, lying, circulation of prejudiced rumors, cheating, monopoly and the engagement of nominal transactions, with no real value. In this way, the wealthy and creditors oppress the poor and debtors who, as a consequence of being unable to bear such oppression anymore or pay back these debts and loans, will grumble and be resentful.

Also, wealth has become a weapon used to dominate and control politics around the world. Money has become the idol the capitalist economy.

Interest-backed banking system inflicts mounting debts on consumers by working within the framework of the system of trading debts, either by selling, buying or brokerage.

The more the interest rate on deposits increases, the more the interest rate on the loans granted to individuals and companies will also increase. Only banks and stockbrokers benefit from this, whereas the debtors, who take loans for consumption or production purposes, bear this heavy burden alone.

Credit card debt inflicts high costs on the consumer, and when one can not pay back his debts, the interest rate is continuously increased. Ultimately, consumer's property will be confiscated in order to guarantee security. This has actually happened to many holders of such credit cards, causing an imbalance of their house budgets.

Indeed, banks impose additional burdens on the borrower who is not able yet to discharge the first loan due to the increasingly higher rate of interest. This is similar to usurers in the pre-Islamic period of Ignorance who would say to a debtor, “Either you repay or augment.”

Furthermore, Stock brokerage firms deceives those in need of loans as they claim high commission payment if there are potential risks, leaving the poor debtors to bear their burden and attributed negative consequences.

Actually, Some economists believe that no real development or wise employment of the means of production could be achieved unless the interest rate is zero. This view was held by Adam Smith, the Father of modern economics.

Furthermore, economists think that the alternative is based on participating in profit and loss, because it brings about stability and security. In addition, interest-based system results in the accumulation of wealth in the hands of few people who will thus be in control of the world’s fortunes.

In addition, The world financial system rests on the basis of the financial derivatives system that depends mainly on nominal transactions, with no real exchanges of goods or services. What is even worse is that most of these transactions are based on credits taken from banks in the form of loans, and when things develop unfavorably all that collapses triggering the financial crisis.

Islamic Economics

The current financial crisis debunks the myths of Capitalism, opening the way for alternative economic systems to emerge, among which is the Islamic finance and economy.

Yet, instead of just reacting to the crisis, scholars of Islamic economics ought to explain the concepts and principles of the Islamic financial and economic system and present its reference and applications to wider audience.

The Islamic economic and financial system is based on a set of values, ideals, and morals, such as honesty, credibility, transparency, clear evidence, facilitation, co-operation, complementarity ,and solidarity.

These morals and ideals are fundamental because they ensure stability, security, and safety for all those involved in financial transactions. Furthermore, the Islamic Shari`ah prohibits the economic and financial transactions that involve lying, gambling, cheating, gharar (risk-taking), gahalah (unawareness), monopoly, exploitation, greed, unfairness, and taking people’s money unjustly.

In addition, Islamic economy promotes participation in profit, loss, and actual exchanges of money and assets. In fact, there should be real interaction between the wealthy, employers, the employees, and financial experts.

There is no party who is a constant winner or a constant loser; yet profit and loss is mutually shared.

Based on Shari`ah regulations, economic contracts entail mudarabah, sharing, murabaha, istisnaa`, salm, igarah, and sharecropping. Shari`ah prohibits all forms of investment-based contracts of funding that involve interest loans forbidding financial transactions that involve gharar (risk-taking) and gahalah (unawareness).

Actually, economic experts assert that the system of financial derivatives can not bring about real development. Financial derivatives create only money, with no real value, causing inflation and price rise ,as well as moral decadence. For example, financial derivatives caused quick collapse of East Asian financial institutions.

Regarding debts, Shari`ah prohibits all forms of selling debts, like discounting promissory notes and checks with postponed payments. Also forbidden under the Shari`ah is the scheduling of debts at a higher interest rate. Prophet Muhammad (peace and blessings be upon him) forbade the sale of debts. In fact, economists contend that selling debts has exacerbated the financial crisis.

Actually, the Islamic economic and financial system makes it easier for the borrower to repay debts. Almighty Allah says: "And in case any person is under difficulty, then he should (be granted) a respite to (the time of) ease…" (Chapter 2: Verse 280).

Shari`ah allows for a system of funding and investment based on participation in both profit and loss and interaction between capital and labor. Shari`ah calls on the parties involved in transactions to behave in a truthful, honest, clear and transparent way by prohibiting gharar, gahalah, cheating, gambling, lying, rumors, exploitation and taking people’s money unjustly.

In a word, the only way out of this crisis can be found in the principles and regulations of the Islamic economics.

World financial crisis: Islamic economics

Pakistan Observer:Do we have any guidance from the economic system of Islam to suggest to the world how to develop a financial system that would not lead the world to economic and financial crises that the world is now facing? If we need to draw lessons from Islamic economics, we need to look into the economics embodied in the institutional framework of Islam.

No doubt, riba (interest, usuary) and maysir (gambling, speculative activities similar to gambling) are the major factors leading to the current financial crisis. Islam’s prohibition of Riba and Maysir along with Islamic values and morals, and recognizing others’ interest in one’s economic fortunes, if adhered to, could not have lead the world to the present day financial crisis. Keeping individuals and Society free form financial and economic crises can clearly be seen as one of the objectives of such instiutions.

The question, however, is how to do this now? Where to go from where we are now? Fine, we can declare that taking and charging of interest in the banking operations is prohibited. But what is the alternative? Current practice of Islamic banking has not provided any convincing alternative. With the Tawarruq made Shari’a compatible, the results can not be expected much different from those of interest based banking system.

I like to draw the attention of all concerned about the need to investigate into the institutional framework of financial system that prevailed in the Islamic societies before they were colonized by the West. The contemporary financial system came into existence when the Muslim societies had already been colonized and their institutions demolished or diluted. The modern financial system developed without taking any lessons from the Muslim civilization.

It is curious to note that almost all branches of modern knowledge admit the contributions of Islamic civilization often referred to “medieval ages” towards their discipline, except science of Economics and Finance which does not recognize any contribution made by Islamic civilization in this field. Even Schumpeter, writing history of economic thought totally ignores the long history of economic successes in the era of Islamic civilization.

It was the period when the poverty was non existent. Basic needs of every one were met. No one was “poor” enough to look forward to receive charity. Worldwide famine type situations were intelligently and successfully dealt with. There is no evidence of financial and economic crisis in the long history spread over about 1000 years.

It is now the time that visionary economists and financial gurus look back and investigate into the institutional set in the economy of medieval ages to find solution for the current crisis. Those familiar with the economy of medieval ages do know that its financial system was not a banking-based system. Its system was either market (of goods and services) based system or it was based on Qardh Hasan (benevolent loans, normally understood as charities).

Financing needs in the market were met through trade contracts. Sale contracts with deferred payments and sale contracts with advance payments met the financing needs through the market without needing financial intermediation. “Know thy client” is more relevant for maket based financial system and hence the issues of adverse selection, moral hazard and transaction cost were minimized.

The financing needs that market could not or did not want to meet, were met by the institutions of Qardh Hasan, Zakah and Awqaf promoted by Islamic teachings. The issue of moral hazard, adverse selection and transaction did not occur even in these institutions. The need for developing financial intermediaries never arose despite economic growth and development.

It is not the place to discuss the details of such a system to meet the financing needs of a modern economy. Once the concept is acceptable, the details can be worked out. The point is that market itself is a better place to generate a financial system to suit its own needs. If markets are functioning well and institutions are in place to give support and protection for the market to provide financing as part of the contract of the sale and purchase of goods and services and if there are institutions to meet the social needs not met by market, there will be no need to develop banks to provide a financial system on interest basis. Even now, several businesses large and small, wholesale and retail, are doing the business by providing financing while selling/purchasing goods and services, without letting their customers go through the banking system to get the financing. They do not have to explicitly refer to interest calcualtions when providing financing for their sales and purchases. Every thing is built-in within the price.

The concept of Forward Sale as give by Islam (known as Bai’ Salam) is wonderful guide to develop a market of Futures contract without tempting the traders and producers in the market to go into gamabling or gambling type “speculation”. (For more detailed discussion on this, see my paper on “Islamic Futures and their Market” published by Islamic Research and Training Institute and is downloadable free from their website). Modern finance, does not recognise the financial system prevailing in medieval ages because it did not borrow anything from there. Occasionally, somewhere we may find a reference to forward contracts of the medieval ages. But there is hardly any attempt to understand the nature and economics of those forward contracts in comparison with the forward and future commodity contracts of today. The financial gurus may find a lot in the economic and financial system that was in practice when Islamic civilization was on top of the world

For drawing lessons from the Islamic financial system as prevalent in the so called medieval ages, what is needed to be done is to reform the market of goods and services in a way that allows the market to develop its own financial instruments to suit the financing needs of the society. Infrastructural institutions are required to be developed to promote and protect the financing provided by the market of goods and services as part of its sales and purchases, rather than promoting and protecting the banking institutions to finance gambling and speculation. A bank-free but market-based financial system is the key to have crisis-free financial and economic system. The developed world can take lead in introducing market-based financial system and show the way to the developing world too, how to get out of the trap of banking based financial system.

Banking-based financial system has long been losing its credibility in the eyes of financial gurus. To Frederic Mishikin, it is a puzzle, “What makes banks so important?” when there are better and less complicated options available in the market to raise financing (including loans). See his book The Economics of Money, Banking and Financial System (Adison-Wesley 8th edition, pp 183). Another curious phenomenon that Mishkin raises is that why banks and finanicial intermediaries, which some how became so important, have lately been witnenessing a decline in their importance in the financial market; and why their share of external funds for businesses has been declining in recent years. (This may probably be the real reason behind providing subprime lending that lead the banking sector to current crisis).

The world bank report on Institutions, 2000 identifies two types of financial system. Market based financial system and banking based financial system. Germany has been mentioned to be having a more market based financial system compared to other countries in the West and now, probably, it is Germany which is in a better shape among the G-7, in this time of worst financial crisis. It is in the interest of both the Islamic economists and conventional economists to look into the Islamic economic system which has been in practice for a very very long time. It gave a lot to the modern world to develop the physical and natural sciences.

Let us see if there is anything for the science of economics and finance to borrow from there in the interest of the wellbeing of man on earth. I particularly invite those working in the framework of New Institutional Economics (NIE) to take it up as a commitment to their own discipline. Let us think of an economy at least free of commercial banking. To start with, let us see how an economy would look like if there were no commercial and there were no short term borrowing and lending on interest.

Key Islamic finance issues to be probed

Gulf Daily News: Albaraka Banking Group will hold a symposium on Islamic economy in Saudi Arabia.

The 29th symposium will be held at the Hilton Hotel in Jeddah from September 6 to 7.

Issues to be discussed will include international commodities and the rules that govern them and protection of the capital of deposits by reason of the applicable laws, Albaraka Banking Group president and chief executive Adnan Ahmed Yousif said.

Other topics to be discussed will be the acceptance of the shares of a bank that deals in interest as security to the debt of an Islamic bank's customer, using the word "interest" as a substitute to the word "profit" or "yield", buying the shares of a company that has Sharia-compliant purposes but deals in interest-bearing deposits or loans and the subject of defaulting debtors who are capable of paying.

The symposium will also review some of the Sharia opinions of earlier Albaraka symposia.

The event will be attended by a select group of prominent Sharia scholars, thinkers and researchers in the area of Islamic economy and Islamic banking as well as executives and managers of Islamic financial and banking institutions from inside and outside Saudi Arabia.

In an effort to broaden the participation and maximise the benefit to English speaking participants, live translation from Arabic to English and vice-versa will be provided. English speakers will therefore be able to participate effectively at the symposium.

To meet the demand for the group's publications on Islamic economy and Islamic banking, Albaraka publications will be distributed to the participants at the symposium.

"Albaraka Banking Group was proud to be a pioneer and leader in seeking to provide the theoretical umbrella and Sharia framework for the majority of products now available in the Islamic financial market," Mr Yousif added.

"Albaraka symposia on Islamic economy have become an economic and Sharia forum that seeks to develop Islamic banking from technical point of view and Sharia compliance.

"The resolutions of these symposia represent a valuable Sharia opinions reference for researchers, university students and different research centres," he added.

The first Albaraka symposium on Islamic economy was held in Medina in 1983 under the auspices of Albaraka Banking Group chairman Shaikh Saleh Abdulla Kamel.

Islamic economics

The Muslims News.

Microfinance tackling poverty

“Microfinance is a useful weapon in tackling poverty. Muslim Aid has changed the lives of tens of thousands of people in the world with its unique microfinance model. Microfinance provides a stepping stone for someone who needs that opportunity” said Sir Iqbal Sacranie, Chair for international development agency Muslim Aid.

Microfinance offers small loans and grants to individuals to develop businesses in poorer countries who are unable to apply for conventional loans which are asset based and require high interest payments.

An event titled ‘Microfinance in the Islamic world’ was held by the All- Party Parliamentary Group on Microfinance/Micro credit on July 9 at the House of Commons. It focused on the compatibility of microfinance programmes with Islamic financial principles and their impact on the Muslim community. Microfinance practitioners, academics and NGOs were invited.

The approach of Muslim Aid is to provide loans which are tailored to the individual and are interest free. The organisation is working in 70 countries around the world providing emergency relief and long term development projects. Its Microfinance programmes operate in countries such as Bangladesh, Somalia, Pakistan, Cambodia, Indonesia, Sri Lanka and Mexico.

alburaq launch Shari’ah compliant savings product

alburaq, the lead provider of Islamic home finance, launched last month the UK’s “first retail Shar’iah compliant alternative to a guaranteed equity bond.”
With a minimum investment of just £500, the alburaq savings plan provides a new way for those wishing to invest in accordance with their faith and provides savers easy exposure to potentially unlimited returns linked to shares in major companies, all with the added comfort of capital protection and Shari’ah compliance.

Head of alburaq at ABC International Bank, Keith Leach, said: “alburaq is very excited to be the first to bring a Shari’ah compliant capital protected product to the retail market in the UK. This new account is an easy way for Muslim savers to gain exposure to the equity markets, in a secure way.”
The product has been developed and will be marketed by alburaq and is offered in partnership with the Bank of Ireland who has a long history of providing guaranteed equity bonds to UK consumers.

Chief Executive of Bank of Ireland UK Financial Services, Des Crowley, said: “Bank of Ireland is delighted to be involved with alburaq in bringing to market the alburaq Savings Plan. This is a highly innovative product, the first of its kind and directly addresses the saving needs of the Muslim Community.”

Savers will be able to deposit funds with the Bank of Ireland for five years in an account structured following the Islamic principles of Wakala. At maturity savers will receive their initial capital back together with 100% of any gain in the performance of a basket of 20 shares in global companies selected from the Dow Jones Islamic Titans 100 Index.

UK Govt announces response to Sukuk consultation

Economic Secretary and City Minister, Kitty Ussher MP, announced last month the Government’s response to the consultation on a sterling Sukuk issuance saying the Government favoured a ‘bill-like’ Sukuk programme which could be fully integrated with the conventional Treasury bill programme.

Chairing the third meeting of the Islamic Finance Experts Group, Ussher said that, were the remaining barriers to be surmountable, a rolling programme of up to around £2 billion of ‘bill-like’ Sukuk issuance would be achievable over time. She added that the group will publish a UK strategy paper on Islamic Finance within the next year.

Kyrgyzstan to adopt Malaysia’s model of Islamic economy

The Kyrgyzstan Government plans to introduce takaful (Islamic insurance), Islamic bond and production of halal products after having introduced Islamic banking one-and-a-half years ago, said Shamil M. Murtazaliev, advisor to the President of Kyrgyz Republic on June 28.The republic has undertaken a pilot project to implement Islamic bank as part of the republics adoption of a dual banking system comprising Islamic and conventional. The conversion was assisted by two experts, one of whom is a Malaysian.

Dubai World

Dubai world said that it has committed $4 billion for various projects in Africa. These Developments include tourist resorts and posts in countries such as Djibouti, Senegal, Rwanda and South Africa.

Comoros to become ICD member

Albania and Comoro Islands have both signed agreements of accession to become members of the Islamic Corporation for the Development of the Private Sector (ICD), a member of the Islamic Development Bank Group (IDB), the 8th General Assembly of the IDB in Jeddah heard.

Sharjah Economic Development Department to launch a forum on Islamic Economy and future aspirations

The forum on Islamic Economy and future aspirations will be launched at Radisson Sas Hotel in Sharjah tomorrow, May 28th, as part of the SEDD’s efforts to spread awareness of Arab and Islamic economies and their great growth potentials

The event will be held under the patronage of H.H Sheikh Sultan bin Mohammed Al Qasimi, Crown Prince and Deputy Ruler of Sharjah, the Sharjah Economic Development Department-organized

The forum will begin by reciting some verses of Holy Quran, then a short statement by H.E Ali Bin Salem Al Mahmoud, Sharjah Economic Development Department General Manager.

The sessions will include three working papers by Sheikh Tariq bin Faisal Al Qassimi, Chairman of Emirates Investments Group, Dr. Mabid Al Jarhi, Financial Expert and Head of Training Unit at Emirates Islamic Bank and Dr. Hatem Al Qarnashawi, professor of Islamic Studies at Qatar University.

The list of topics to be discussed at the forum’s session includes seven topics, namely, 'definitions and aspects of Islamic economy', 'Islamic Economy: aspirations and challenges', 'sustainability of Islamic Economy', 'the role Islamic Economy plays in economic growth', 'International financial institutions trend to use Islamic solutions', 'Obstacles confront codification of Islamic Economy, definition and solutions' and 'Islamic Economy’s culture among investor communities'.

The three speakers are key and prominent experts in this field. They will enrich the forum by their wide experience in economy, in general, and particularly the Islamic economy.

Sheikh Tariq bin Faisal Al Qassimi graduated from the Higher Colleges of Technology, UAE with a Bachelors Degree in Business Administration and received his Masters Degree in International Finance from Westminster University, UK. He also has several certificates - from Harvard University, the London Business School, Stanford University and the University of Cambridge. The Chairman of the giant Emirates Investments Group was a member in Sharjah Executive Council and has held the position of SEDD Chairman as well as many other senior positions.

He has won the young leader award in recognition of his outstanding contribution in setting up an ideal investment infrastructure to attract investments. He has interests in investment, real estate development, trade and contracting as well as in economy and economic researches.

Dr. Mabid Ali Al Jarhi is currently a Financial Expert at Emirates Islamic Bank, a President of International Association for Islamic Economics, London, and an Executive Secretary of Shariah Board-Dubai Financial Market.

He was closely associated with developing an Islamic scheme for financing trade in IDB, KSA, as a Manager of the scheme. He is the editor of unified Arab economic report and has served as Secretary-General of the Council of Governors of Arab Central Banks at the Arab Monetary Fund, Abu Dhabi.

Dr. Hatem Al Qarnashawi, professor of Economics and Finance and Dean of College of Islamic Studies Islamic Studies at Qatar Foundation. He was the former economic advisor for Egypt Prime Minister, a member in Central Bank’s Board of Directors and deputy governor of International Monetary Fund, Abu Dhabi.

Commenting on the occasion, H.E Ali Bin Salem Al Mahmoud, Sharjah Economic Development Department General Manager, said: 'The SEDD is organizing this event which is sponsored by Sharjah Islamic Bank with the aim to raise awareness of Islamic economy culture among investors and audience, alike, in a bid to boost Sharia’a compliant Investments.

The growth of this type of investment will significantly contribute to the UAE sustainable growth as it will open new vistas for development. The Islamic economy is flexible and in compliance with our beliefs'.

Al Mahmoud stated that organizing this forum comes in line with Sharjah’s directions set by H.H. Dr Sheikh Sultan bin Mohammed Al Qasimi, Supreme Council Member and Ruler of Sharjah, and the necessity to implement these directions which cover all aspects of life.

Al Mahmoud clarified that the forum will discuss different aspects of Islamic Economy such as Islamic finance, Islamic business practices and positive sides of Islamic Economy which has become one of the most powerful and effective economic systems all over the world.

Al Mahmoud indicated that the forum will see great attendance by top economists, businessmen academics and specialists as well as an extensive media coverage.

UAE- SEDD to organize a forum on Islamic Economy

Sharjah Economic Development Department begins preparations to organize a forum on "Islamic Economy and future aspirations" in a move to spread awareness of Arab and Islamic economies and their great growth potentials.

Commenting on the occasion, H.E Ali Bin Salem Al Mahmoud, Sharjah Economic Development Department General Manager, said: "The department has shouldered the responsibility of raising awareness of Islamic economy culture among investors and audience, alike, in a bid to boost Sharia'a compliant Investments.

This growth of this type of investment will significantly contribute to the UAE sustainable growth as it will open new vistas for development. The Islamic economy is flexible and in compliance with our beliefs. Adopting the Sharia'a rules will protect our investments from any prohibited action and practice".

Al Mahmoud stated that organizing this forum comes in line with Sharjah's directions set by H.H. Dr Sheikh Sultan bin Mohammed Al Qasimi, Supreme Council Member and Ruler of Sharjah, and the necessity to implement these directions which cover all aspects of life.

"The forum will be held under generous sponsorship of H.H Sheikh Sultan Bin Mohammad Bin Sultan Al Qasimi, Crown Prince and Deputy Ruler of Sharjah, and Chairman of Sharjah Executive Council", Al Mahmoud added.
Al Mahmoud said the forum will host a group of economists to highlight a number of topics related to Islamic economy, its role in sustainable growth and its future potentials.

The forum will define and discuss in depth the core concepts of Islamic economy and the needs for this model of economy as well as the relationship between the Islamic economy and the Islamic banks.

Other topics to be highlighted include the definition and models of growth, the role of human resource in Islamic economy and its growth programs and will find answer to such questions as "Did the growth models in Arab and Islamic world succeed?" "What are the financial indicators that measure the success and sustainability of Islamic economy?"

The forum will discuss the role played by Islamic finance in growth process through answering such questions as "How far the enhanced Islamic finance will lead to growth?", the relations between Islamic economy and inflation, revenue distribution, cost of production and the ability for local and international competitiveness.

The forum will highlight the small enterprises and present the Islamic finance model for these projects. One of the most important parts of the forum will be a debate on "Where have we reached and what are our future aspirations?"

The forum will be held at Radisson Sas Hotel in Sharjah on Monday 12th of May. Speaking of the preparations for to organize the forum, Nawal Askar, deputy director of Economic and Public Relations at the SEDD, said: "Preparations are going ahead and we are preparing lists of key corporate and individual investors to be invited to attend the forum. Speakers will be prominent economic experts".

A Higher Law for Lending

Washington Post,May 13, 2008

The mortgage industry may be in meltdown, but at least one class of lender appears to be flourishing: Islamic finance companies that offer Muslim home buyers alternative arrangements such as lease-to-own deals so they can avoid making the sort of interest payments that many believe their religion forbids.

Officials at Guidance Residential, a Reston company that has financed more than 5,000 home purchases since it began in 2002, said the company is having its best year yet, with business up 7 percent in the first quarter of 2008 from the first quarter of 2007.

At University Islamic Financial, which began in Ann Arbor, Mich., and expanded its operations to Maryland, Virginia and five other states last year, officials said the number of home-financing applications quadrupled from last March to this March.

Representatives of the four major Islamic home-finance institutions in the United States said they do not track the reasons customers choose them over conventional mortgage brokers. Several speculated that it was due to the natural growth of what is still a fledgling retail industry, as well as two side effects of the mortgage crisis: The drop in prices in many regions has brought homes back within reach of first-time buyers, who make up a sizable chunk of Islamic financiers' customers. And the drumbeat of negative publicity about the practices of subprime mortgage lenders has amplified the distrust and discomfort the conventional mortgage industry already inspired in many Muslims.

"Folks have to be questioning the methods used by conventional mortgage companies over the last three or four years based on what's happening today," said Hussam A. Qutub, a spokesman for Guidance. "And I think that makes more people think, 'Well what about the emergence of this [Islamic-] compliant financing industry? Let me give it a look and educate myself about it to see if it could perhaps be more beneficial to me.' "

That was the prevailing sentiment among potential customers who approached an advertising booth staffed by Guidance representatives at the annual spring fair held by the All Dulles Area Muslim Society in Sterling on a recent weekend.

Nabila Zerrarka, an Algerian-born woman wearing a white-and-green headscarf and pushing a stroller, wanted to find out if Guidance's home-finance options were more straightforward than those offered by traditional mortgage brokers.

"Deep down, I don't feel comfortable paying interest because it is against my beliefs," said Zerrarka, 29, who is searching for her first home and has already obtained a prequalification letter for a conventional loan from Bank of America. "But I also feel it's against my financial interests to pay interest. . . . What we've seen is that with interest-bearing loans, there are all these gimmicks and hidden costs and tricks that they can surprise you with. . . . If there is a possibility of doing it the Islamic way, we'd like to explore it."

Mounir Elhaj, 45, a native of Sudan who works at a moving company, wanted to know how Guidance deals with customers who fall behind on their payments. He said he recently helped move a woman whose house was foreclosed on after she missed payments.

"She had been paying her mortgage for 17 years, and the bank still took her house," Elhaj said to the Guidance sales representative. "So I want to know if I bought a house and then fail to pay, can you help me?"

The representative, Amr Mohamed, smiled magnanimously. "Yes, we can," he said, adding that Islamic law, known as sharia, forbids businesses from profiting from a customer's financial hardship. So if a customer is late on payments, Guidance charges him or her a flat administrative fee to cover processing costs but none of the percentage-based penalties and additional fees that conventional mortgage companies can pile on.

Islamic home financing aims to offer Muslim buyers the same opportunities as conventional lenders but with a twist that gets around sharia's prohibition against the payment of riba. Generally defined as excessive gain, riba has over the years come to be considered the equivalent of making money by renting money -- in other words, charging interest -- because the borrower shoulders risk while the lender is guaranteed a return.

In one of the alternative arrangements offered by Islamic finance companies, the company buys the house, then sells it to the home buyer in fixed monthly installments at an agreed-upon marked-up price. The markup rate is kept competitive with the prevailing interest rate on a conventional mortgage. So apart from a few additional transaction costs from the atypical nature of the arrangement, the buyer's monthly payment is roughly equivalent to what it would be with a conventional mortgage.

A second option is for the financier and the home buyer to enter a lease-to-own contract similar to those used to buy cars. Once again, the rental portion of the monthly payment is kept equivalent to prevailing interest payments. The third model, which is favored by Guidance, is also based on a lease-to-own arrangement, except that the buyer and the finance company form a limited-liability entity to own shares of the property.

All three arrangements got a major boost in 2001 when Freddie Mac agreed to begin buying them on the secondary market, ultimately including not just Guidance and University Islamic, but also Devon Bank in Chicago and American Finance House Lariba of Pasadena, Calif. Last year, Freddie Mac bought more than $250 million in Islamic home loans -- a tiny fraction of the corporation's $1.77 trillion business but nonetheless a slight increase over previous years, according to spokesman Brad German.

While Islamic finance companies have convened boards of prominent scholars to certify that their finance arrangements comply with sharia, not all Muslim thinkers are convinced that they are necessary.

Mahmoud Amin el-Gamal, an economics professor at Rice University specializing in Islamic finance, noted that even in Muslim countries, sharia-based financing was developed in only the past several decades. And he argued that because conventional mortgages are secured by a physical good, namely the home, that is usually the only asset the lender can repossess if the borrower fails to repay, such loans should not be considered the equivalent of making money by renting money.

In any case, el-Gamal maintained, Islamic home-finance products are so closely modeled on conventional mortgages as to constitute a distinction without a difference.

"This is an industry that preys on people's religious insecurities by selling them a product that they claim is different when it's not. It's false advertising, and it's a case of supply creating demand," El-Gamal said.

But Hirsi Dirir, a Somali-born technology analyst who recently obtained financing from Lariba to buy a townhouse in Annandale, said such objections pale in comparison with the peace of mind he has gained from making the extra effort to adhere to his faith.

"I wish I could avoid everything that Islam doesn't allow, but I can't," said Dirir, 32. "So if I have the opportunity and the choice to avoid interest, then it's very important to me not to mess with it."

Rizwan Jaka, 35, president of the All Dulles Area Muslim Society and one of the first to buy a home with Islamic financing in the Washington area, also said the emergence of such arrangements constitutes an important milestone in the integration of Muslims in the American mainstream.

"It definitely marks a coming of age for us. . . . It's part of the whole process of being a part of this country while being able to have our faith accommodated," he said. "The American dream is to purchase a house, and the American Muslim dream is to be able to do so in an Islamic manner."

Islamic economics only solution to global crisis: researcher

A Malaysian researcher believes that the Islamic economy model is the only solution to the current global economy crisis.

Mohammad Mahmud Avan, who is a professor at the International Islamic University of Malaysia in the Review of Islamic Economy Gathering held here stated, “The current economy crisis which has spread all around the world has opened new windows to Islamic economics,”

Editor:Islamic economic jurisprudence?

Islamic economics is economics in accordance with Islamic law. Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; i.e. it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, etc. where the state does not follow Islamic law.

The former paradigm, particularly as developed by modern Shia scholars such as Mahmud Taleqani, and Mohammad Baqir al-Sadr, seeks not only to enforce Islamic regulations on issues such as Zakat, Jizya, Nisab, Khums, Riba, insurance and inheritance, but to implement broader economic goals and policies of an Islamic society.

It seeks an economic system based on uplifting the deprived masses, a major role for the state in matters such as circulation and equitable distribution of wealth and ensuring participants in the marketplace are rewarded by being exposed to risk and/or liability.

Islamists movements and authors will generally describe this system as being neither Socialist nor Capitalist, but a third way with none of the drawbacks of the other two systems.

The latter paradigm is of necessity more limited, revolving around a few main tenets of Islam: the payment of zakat charity by believers, borrowing and lending without payment of interest (riba), and socially responsible investing. The key difference from a financial perspective is the no-interest rule since most other religions favor charitable giving and socially responsible investing.

The belief that the prohibition of investment with interest charges is essential for an Islamic society is widespread, though liberal movements within Islam may deny the need for this prohibition, since they see Islam as generally compatible with modern secular institutions and law.[Read more...]

IKSA: Islamic economics can solve world problems

MENAFN - Arab News) Islamic economics presents viable solutions to many problems facing the world, says Abdul Rahman Al-Jeraisy, a leading businessman and chairman of the Riyadh Chamber of Commerce and Industry. "There are a number of successful experiments in the field of Islamic economics," Al-Jeraisy said, emphasizing the importance of applying Islamic methodology in utilizing and managing material resources.

In a statement on the occasion of the seventh Islamic Economic Conference, which opens at King Abdul Aziz University (KAU) in Jeddah on April 1, he said the conference would shed more light on the growing significance of Islamic economics. "The Shariah has given utmost importance to economic matters and warned against financial dealings that would have dangerous consequences on the Ummah and moral values," said Al-Jeraisy.

He underlined the importance of the conference as it comes at a time when many Muslims have drifted away from Islamic teachings in dealing with their economic and financial matters.

"The conference also offers a good opportunity for interested people to become aware of new research in the field of Islamic economics," he said. Jeraisy Group is one of the conference's main sponsors.

The three-day conference will examine the findings of numerous studies in Islamic economics to counter challenges posed by the modern world and help poor Muslim countries develop their economies. Dr. Abdullah Muhammad Bafel, vice-president for higher studies and scientific research at KAU, said the conference would formulate a futuristic economic vision from an Islamic perspective.

The conference will bring together economists, business leaders, entrepreneurs, thinkers and journalists. It will be a forum for Islamic economists, bankers and financiers to discuss the intricacies of Islamic finance and examine the dynamic nature of Islamic economies. "It is vital to examine why the vibrant principles of Islamic economics have not been implemented over the past few years and no viable method has evolved to invest the wealth of rich Muslim countries in poorer Muslim countries," Bafel said.

Participants will also discuss the development of natural resources in Muslim countries in the light of the challenges and opportunities posed by globalization. The conference will also help develop strategies to create a better understanding of business opportunities in emerging markets.

The conference will discuss as many as 50 research papers on various topics presented by experts from different parts of the world. Dr. Abdullah Al-Musleh, secretary-general of the International Organization for Scientific Miracles in the Holy Qur'an and Sunnah, will present a paper on "Miraculous Economic Teachings in the Qur'an."

Al-Musleh will focus on the economic problems being caused by the interest-based banking and financial system that obstructs investment, causes inflation and expands the divide between rich and poor. "Zakah encourages investment, controls inflation and contributes to solving unemployment problems," he added.