LONDON: The worst financial crisis in a century can pave the way for Islamic finance to reach world banks. The banking industry is forced to reassess its functioning. Therefore, banks will be more receptive to alternatives now more than ever before.
“No one is saying we are glad the financial crisis has happened but now all banks are being forced to reassess what they do. That is not to say that our solution, the Islamic banking, was not right before. It was always right but sometimes opportunities like this make it easier for people to be more receptive,” Azhar Khan, head of finance at the European Finance House, told Arab News during the Saudi International Conference that concluded this week.
The common criticism of Islamic banking is that it is not really Shariah compliant. Islamic banking was developed 20 to 30 years ago. The approach was to try and replicate products that were already there in the market. “We do not have to keep replicating. We have a wider solution that we should now be telling the world about. We need not be afraid to go forward with some of the advanced and further developed methodology with Islamic finance,” he said.
According to him, Islamic banking has more openness. There is a fairer sharing of risk and reward and that there is more ethical investment. Ethical investment and ethical products are important to non-Muslims and “talking as a Muslim, we know that there is wisdom in Islamic products and it is for us to go out and explain this to people,” Khan said. Things have changed recently and global banks, whether conventional and Islamic, had a wake up call about the need to reassess. “If there is no demand for the things that we want to move toward, then it becomes very difficult. We are there to serve our community and provide products for our clients. But it is also important that our market, our customers want to move with us as well and then we can move everything forward.”
Sami Al-Suwailem, senior research advisor at Islamic Research and Training Institute, Islamic Development Bank, said that causes of the crisis were uncontrolled debt financing and uncontrolled risk-taking. Both led to an inverted pyramid of wealth which has a larger debt on top. “Profits are privatized while losses are nationalized. People will pay for the losses. The system will prefer capitalism during an upturn, while communism downturns combining the worst of both worlds,” he said. Al-Suwailem added that Zakah was a very effective solution for deflation which is happening now. It is a benevolence tax on hoarded money. Zakah is against hoarding.
He pointed out that gambling and usury are the “roots of danger” in finance. In gambling, the loss is more than gain. “If Islamic finance had been adhered to, the crisis could have been avoided,” he said. According to him, Islamic finance is a self-safety system. Islam has Zakah, interest-free lending, forbearance and other social facilities that would make the crisis less damaging and less costly.
Ahmed Belouali, researcher and assistant professor, Islamic Economic Research Center at King Abdulaziz University, said that Islamic financial guidelines would help us at least minimize the causes of this crisis.
Frank Vogel, professor of Islamic law at Harvard University, said that he had studied Islamic law and looked into the prohibitions of Islam and said, “I never absorbed well and understood the implications that we do not sell what we do not own but when the crisis happened, I realized the importance of this.”
