LONDON, 24 May 2004 — The Prince of Wales is not only “the defender of the faith” in the UK, but is also emerging as a strong supporter of Islamic banking, with its ethical and socially-responsible investment message. In London, last week, Prince Charles heaped praise on the ethos and development of Islamic banking over the last decade or so. The prince called on the Islamic banking movement also to play a role in empowering Muslim youth by supporting various educational, vocational, and social-cultural programs, especially in the West such as the UK and EU.

In a post 9/11 environment, Islamic banks mainly those in the Gulf states have been very sensitive to allegations in certain sections of the international media that they were laundering terrorist money. Some of these media may indeed have an anti-Islam agenda; or simply following the stereotype bandwagon about Islamic banking, based more on ignorance and poor journalism than on anything sinister. Perhaps it is no co-incidence that the sector has come under greater scrutiny from the US and UK Treasuries; the IMF, the World Bank, the Bank of International Settlements in Basel; and the Financial Action Task Force (FATF) against Money Laundering set up by the G-7 countries in 1998. However, a new tactic is also emerging. Islamic financial institutions (IFIs) are also throwing money at promoting the sector and the practice in the West. Hence the spate of conferences in Washington, London, and elsewhere. Indeed the General Council is organizing yet another Islamic banking conference in Washington D.C in October 2004 aimed at influencing US politicians and lawmakers on Capitol Hill about the legality and efficacy of Islamic banking and its positive contribution to the international financial system. The General Council itself may be strapped for cash, but judging by the current Islamic banking conference circuit, the sector itself has deep pockets when it comes to sponsoring such events.

Some observers are skeptical about this approach, stressing that the best way the sector can promote itself is through a developed infrastructure — regulatory, legal, accounting, consumer protection and such; and through its achievements and practices. They lament the lack of transparency and disclosure generally in the sector; and coupled with almost a divine-belief that because their system is faith-based, Islamic banks cannot possibly be involved in fraud and other such shortcomings.

There may be some sagacity in this, given the haphazard development of the Islamic financial sector in the 55 member countries of the IDB. Some countries have no Islamic banking in place; others where Islamic banks do operate, do not have the requisite legislation and regulatory frameworks in place. Many of the GCC countries, for instance, are only now introducing capital market, insurance, money laundering, and foreign investment laws. Most of the GCC states also do not have open property ownership laws for foreigners. However, it must be stressed that the number of systemic failures in the sector have hitherto been minimal. But is this because of the inherent strength of the sector, or the fact that poor transparency may allow institutions to cover-up such excesses?

Saleh Kamel, head of the Dallah AlBaraka Group, it seems, is also pushing another angle. “Just (economic) principles and noble values, represent the essence of all heavenly religions. The essence of non-usury (non-interest) transactions, now the so-called ‘Islamic banking’ is the same essence of heavenly teachings which prohibited usury, monopoly, deception (Gharar), and unequal distribution,” he told the London conference (and in the presence of the Prince of Wales).

In fact, Saleh Kamel went further and berated the (Western) nations of “deviating” from these basic concepts, and eloquently outlined the basic disadvantages of usury for an economy and society. In this respect, Islamic banking could derive more success in trying to promote also an inter-faith approach to non-usury banking and finance.