MANAMA, 9 October 2003 — Discussion and debate were primary features of the 5th International Conference on Islamic Economics and Finance as the working sessions moved forward in earnest.

Sixteen papers were presented on Day Two of the event. Looking over the audience, it was easy to see that interest in Islamic Finance has spread around the globe.

Dr. Mohammed Akacem traveled to the conference from Denver, Colorado, USA. An economics professor at Metropolitan State College of Denver, Akacem has been teaching traditional banking concepts for 20 years.

“Lately, the discussion about which banking system is superior has attracted wide attention,” he explained.

“The prevailing theory is that the non-interest model of banking is superior because it is able to absorb shocks better. In traditional banking, financial institutions must guarantee deposits dollar for dollar. The Islamic system is share based. If a bank’s profitability goes up then an individual’s shares go up. If there is a loss, the shares go down. In my class I explain that Islamic Banking works very similar to the concept of mutual funds. Interest is replaced with profit sharing.”

Due to the element of risk, it is very important for individuals placing their funds at an Islamic bank to clearly understand that bank’s activities.

How will the funds the bank pools together be used? Some activities such as home construction are low risk. Others, such as automobile financing, are a much higher risk.

“Organizations that regulate and audit the Islamic Banking industry are developing instruments and benchmarks that will enable banks to be awarded risk ratings,” said Akacem. “A rating system is essential to give investors greater confidence in Islamic banking.”

An increasing number of traditional financial institutions are taking up the concept of Islamic Banking.

Dr. Usamah Ahmed Uthman, associate professor, Department of Finance & Economics, King Fahd University of Petroleum and Minerals, Dhahran, believes that such moves should be welcomed.

“Some purists don’t like co-mingling but I disagree,” said Uthman. “There are many motivations for people to get into this business. What is important is that Islamic Banking is becoming more regulated and standardized. The experiment of Islamic Banking is only 30-40 years old. It’s relatively new, but mushrooming everywhere. However, the time has come for us to get out of traditional thinking and stop mimicking conventional banks. We need to innovate to allow Islamic Banking to become a stronger pillar in national economies.”

“Remember though, that it is up to each investor choosing to engage in Islamic banking, to examine the financial instruments that any bank is offering,” he continued. “See that the financial instruments have been certified as being Shariah compliant and ask questions about any points that are not clear or appear to be contrary to Shariah.”

The last word for the conference went to Dr. Mohammed Najatullah Siddiqi, president, International Association for Islamic Economics. Siddiqi well understands all the issues associated with Islamic Banking, having been a professor of economics at King Abdulaziz University, Jeddah, from 1978-2000.

“There is a widely-spread feeling that the Islamic Banking movement is not meeting the needs of the poor; that it is an alternative only for the rich,” he commented.

“Let’s be honest. It is not the job of the banks to give people money. Financing something promising is a different story. For Islamic banking to play a stronger role, more professionals must develop the skills needed to determine the worth of a project.

“Also, it was thought that a profit sharing arrangement working in many ways like venture capital would take off in the Islamic Banking arena, but it hasn’t. Leaders in this area are needed. I call on the Islamic Banking associations and institutions to put their energies and focus into this issue in order that Islamic Banking will continue to thrive.”