Credit crunch a golden opportunity

The current crisis has little to with interests from what I understand though? Subprime lending is just that, lending at higher risk because those borrowers are at a higher chance of defaulting on their loans, i.e. they might not be actually be able to afford the loan. This seems unrelated to whether you engage in usury or not? Or are there other principle in Islamic banking that would prevent such "subprime" transactions?

You know what i find most interesting about this whole episode, the fact that governments everywhere are frenetically scrambling to secure billions in bail out plans. Yet this whole notion contradicts the basis of a free market economic system, where government intervention is highly derided

But i suppose the fact that whole economies were at risk really forced the hands of politicans into taking such unprecedented economic steps to avert full blown economic collapse and recession in their respective nations.

Islamic Banks Withstand Mortgage Crisis



"The Islamic bank has a fantastic year, the underlying trend of Islamic banking businesses within ABC is very good," said Smith. (Reuters)


MANAMA — Islamic banks have succeeded where all others have failed, withstanding the US subprime mortgage crisis which left global markets rattling.

"The Islamic bank has a fantastic year, the underlying trend of Islamic banking businesses within ABC is very good," a senior official of the Arab Banking Corporation told the Reuters Islamic Finance summit on Monday, February 4.

Duncan Smith, the head of the Corporation's Islamic operations, said a focus on regional business and efforts to ensure products complied with Shari`ah helped shield his unit from credit-market losses.

The bank's 2007 earnings from conventional non-Islamic departments fell to $125 million from $202 million in 2006.

The ongoing American subprime mortgage crisis, which is making international headlines, was sparked off last year when a steep rise in the rate of foreclosures caused more than 100 lenders to fail or file for bankruptcy.

The crisis had a domino effect on the US economy and stock market, which in turn affected almost all stock markets worldwide as early as last month.
Global banks have written down more than $80 billion in credit market losses since October alone as defaults on subprime mortgages triggered a credit crisis that threatens to tip the US economy into recession.

None of Malaysia's Islamic banks have been hit by write-downs resulting from the crisis and the resulting global credit crunch, second finance minister Mohamed Nor Yakcop told the three-day summit in the Bahraini capital Manama.

He said holders of sukuk or Islamic bonds have been shielded from the worst effects of the subprime mortgage meltdown.

Instead of interest, Islamic banks operate on the principle of sharing risk and reward among all parties in a business venture.

Growing


"Sukuk has now become a very popular product," said Nor Mohammad. (Reuters)

Economists say the global credit crunch triggered by the subprime crisis has spurred greater interest in Shari`ah-compliant financing.

"There is a feeling that the way Islamic finance is structured — the lack of freedom in leveraging, the need for real assets — that there will be some who will find Islamic financing interesting," said the Malaysian official.

He said interest in financial instruments that comply with Islamic prohibitions against investing in sectors such as alcohol, pornography and gambling was starting to emerge in China and South Korea.

"Sukuk has now become a very popular product," Mohamed Nor stressed, adding that officials from Hong Kong had consulted with Malaysia on Islamic finance.

Rasheed al-Maraj, the governor of Bahrain's Central Bank, believes the mortgage crisis could encourage weary investors to throw their weight behind Islamic assets and stocks given the collapse of Western asset prices.

"Maybe Islamic banking will be a safe bet for them," he said.

"I think opportunities exist in the United States and Europe as a result of this financial distress."

Giant banks like America's Citigroup, Britain's HSBC and Germany's Deutsche Bank recently launched Shari`ah-compliant branches.

A Deutsche Bank executive told Reuters that it was helping US and Canadian firms to sell Islamic bonds in Malaysia this year worth between $300-500 million in ringgit.

Having about 76 percent of the world's Islamic bonds, Malaysia has been promoting itself as a hub for Islamic finance but faces rivalry from neighboring Singapore and Brunei.

The Islamic banking industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.

There are an estimated 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2010.

Arab world generally safe from world economic turmoil

Galal Fakkar | Arab News

JEDDAH: The individuals living in the Arab world, including the six GCC countries, will be less affected by the current international financial crisis whose brunt will be on banks having investment portfolios in the world markets, particularly in the US, president of the Federation of Arab Banks Adnan Ahmed Youssif told Arab News in an interview yesterday.
He expected the negative impact of the crisis on individuals only for the short-term. Youssif speculated that the crisis might continue for more than 18 months and said the impact of the crisis on Arab banks will vary from one bank to another.

He said Islamic banks will be the least affected by the repercussions of the international financial crisis because of the nature of their transactions in the local markets and because they were not involved in the international banking system. Youssif said his organization had earlier warned banks in the region that such a crisis was imminent due to some signals derived from the performance of the American economy.

“This has reduced the influence of the crisis on the Arab banks,” he said. He expected the return of some Arab investments from outside in the coming period within the precautionary measures being taken by banks and investors to avoid the impact of the crisis.

None of these articles, however, claim that the Islamic nature of the banks is in itself a protection against such crisis. Rather they are not particularly affected because like it says "they were not involved in the international banking system". This simply has nothing to do with usury, you could have a similar mortgage crisis when avoiding interests. If suddenly a lot of people can no longer pay off their loan a bank will be in trouble, usury or no usury! The issue is how willing banks would be to lend to people who can't really afford it, which from my limited understanding, is not something that is defined in Sha'ria law?

Besides, some of these comments are simply disingenious and betray an obvious bias: "Islamic banks have succeeded where all others have failed". Come on, the majority of banks in de West, certainly outside of the US, have not failed and are still generally making insane profits. Few banks in, for example, Western Europe have had major mortgage write-offs, simply because the majority are not engaged in the sub-prime loan market. The issue here is the reluctance of banks to lend to eachother, which is hurting all those banks who have a liquidity problem and rely heavily on the international loan market.

Note: This is from my understanding anyway . I'm not an economist!

The issue with the U.S. financial crisis is indeed subprime loans. What happened in the U.S., although it affects the world banking system, is a domestic problem. Although I believe European banks, at least some of them, were guilty of doing the same thing and are in trouble themselves.

As Kading mentioned, it is a problem of liquidity. Banks don't have the money to loan other banks money, which means business can't get loans to run their daily operations. Meaning primarily payroll. That is why the U.S. Treasury Department has taken it upon themselves to funnel money into the market. In this case, $700 Billion.

Actually, it comes down to banks behaving immoraly and greedily. Some banks do have the money to loan others but they don't trust one another, so won't loan to each other (lack of confidence and security). I know quite a bit on this topic as we're studying it at uni (two of my modules so far have been directly related to the credit crunch)

If the islamic banks can promise security, then things might just get a little more exciting. Promise security - people put their money into that bank - that bank's shares skyrocket - people start buying more shares (in that company) - economy gets a good ol' boost, as money is flowing again.

But, until security (and confidence!) is restored (in people and banks), get used to the crunch.

KAding said:

....This seems unrelated to whether you engage in usury or not? Or are there other principle in Islamic banking that would prevent such "subprime" transactions

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Islamically speaking, subprime mortgages wouldn't be a product available; if you cannot pay the mortgage back, the bank wouldn't loan it to you in the first place. Too risky for everyone involved - the whole point of the islamic banking system is to minimise risk for all parties and create a fair system.

CNBC World - Islamic Finance: Applying religion to economics


http://www.youtube.com/watch?v=xsyWh1DLIUg

islamirama said:

Islamic banks will be the least affected by the repercussions of the international financial crisis because of the nature of their transactions in the local markets and because they were not involved in the international banking system.

Click to expand...

aamirsaab said:

the whole point of the islamic banking system is to minimise risk for all parties and create a fair system.

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AsSalamOAlaikum WaRehmatuAllah Wabarkatuhu

JazakAllah Khair aamirsaab and islamirama for your posts/comments

Would like to add whole idea of islamic banking is that money itself has no intrinsic value, and forbids people from profiting by lending it, without accepting a level of risk – in other words, reeba(interest) cannot be charged!!!!:sunny: SubhaanAllah


FiAmaaniAllah

Central banks step in to save Gulf markets



RIYADH – After four days of decline, Gulf central banks stepped in to save the local bourses after another day of sharp falls.

The Gulf markets have shed more than $160 billion of their capitalization this week.

Following Wednesday's decline, the UAE central bank dropped the interest rate by 0.50 percent, while the Kuwait Central bank lowered interest rates by 125 basic points.

The Saudi Arabian Monetary Agency (SAMA) announced its readiness to pump SR150 billion upon request.

Saudi authorities have put SR350 billion ($93 billion) at disposal of the Saudi banks to cope with the financial crisis, according to an official.

SAMA, the Kingdom's central bank, has earmarked this sum to be at the disposal of the national banks, said SAMA Deputy Chairman Mohammad Al-Jasser.

Al-Jasser added that SR200 billion were already accessible for the banks and SR150 billion would be made available upon request in the future.

Qatar central bank issued a statement assuring traders that the economy remains solid.

The decisions, according to analysts managed, had a positive impact on the Tadawul in Saudi Arabia, where losses fell from 9 percent to 1.5 percent, while Kuwait fell by 1.4 percent.

The Saudi stock market, the largest in the Arab world, was closed on Thursday after a rollercoaster ride on Wednesday, its final day of trading this week.

After slumping below 6,000 points for the first time in more than 52 months and shedding more than eight percent, Saudi's Tadawul All-Shares Index ended the day down 1.5 percent at 6,160.52 points.

For the week as a whole, the TASI plummeted 17.4 percent following the market's reopening on Monday following the Eid holiday.

Most Arab stock markets rebounded on Thursday, bolstered by interest rate cuts and infusion of fresh liquidity, following this week's battering by concerns over the global financial crisis.

However, after the concerted action by the central banks, six of the seven Gulf stock markets showed moderate to strong gains on Thursday at the close though all of them finished the week sharply down after panic about the global financial meltdown took a heavy toll on share prices.

The Kuwait Stock Exchange, the second largest in the Arab world, finished up 3.8 percent at 11,905.70 points, spurred by reports of a massive government package worth more than $20 billion to assist the financial system.

The KSE index, however, ended the week down 7.3 percent despite Wednesday's interest rate cut by the country's central bank.

The Muscat Securities Market made the strongest recovery on the final day of the trading week, closing up 8.3 percent on 7,178.39 points, leaving it down 9.2 percent for the week.

In the United Arab Emirates, where interest rates were also reduced on Wednesday, the Dubai Financial Market Index reversed a small part of the 25 percent losses it has accumulated in the past four days.

The index bounced 3.7 percent to close on 3,198.09 points, remaining a massive 22.5 percent below last week's finish.
DFM was supported by the telecom and real estate sectors which rose 9.3 percent and 5 percent, respectively.

UAE neighbor the Abu Dhabi Securities Exchange, closed up 1 percent on 3,207.30 points on the back of a 3.7 percent rise by the real estate sector.

The UAE also cut interest rates on Wednesday.

Like other markets, Abu Dhabi finished the week sharply lower, registering a 18.9 percent decline. –
In gas-rich Qatar, the Doha Securities Market increased 1.9 percent to close on 7,573.62 points. It has shed 18.7 percent in the week. – Agencie

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentID=2008101018800


Imitate the kuffars in unislamic and haram way of banking and share their fate

Iceland teeters on the brink of bankruptcy

By JANE WARDELL, AP Business Writer Tue Oct 7, 2008



REYKJAVIK, Iceland - This volcanic island near the Arctic Circle is on the brink of becoming the first "national bankruptcy" of the global financial meltdown.



Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an outsized banking sector that set out with Viking confidence to conquer swaths of the British economy — from fashion retailers to top soccer teams.


The strategy gave Icelanders one of the world's highest per capita incomes. But now they are watching helplessly as their economy implodes — their currency losing almost half its value, and their heavily exposed banks collapsing under the weight of debts incurred by lending in the boom times.


"Everything is closed. We couldn't sell our stock or take money from the bank," said Johann Sigurdsson as he left a branch of Landsbanki in downtown Reykjavik.


The government had earlier announced it had nationalized the bank under emergency laws enacted to deal with the crisis.


"We have been forced to take decisive action to save the country," Prime Minister Geir H. Haarde said of those sweeping new powers that allow the government to take over companies, limit the authority of boards, and call shareholder meetings.


A full-blown collapse of Iceland's financial system would send shock waves across Europe, given the heavy investment by Icelandic banks and companies across the continent.


One of Iceland's biggest companies, retailing investment group Baugur, owns or has stakes in dozens of major European retailers — including enough to make it the largest private company in Britain, where it owns a handful of stores such as the famous toy store Hamley's.


Kaupthing, Iceland's largest bank and one of those whose share trading was suspended last week to stop a huge sell-off, has also invested in European retail groups.


Thousands of Britons have accounts with Icesave, the online arm of Landsbanki that regulators said was likely to file for bankruptcy after it stopped permitting customers to withdraw money from their accounts Tuesday.


To try to wrest control of the spiraling situation, the government also loaned $680 million to Kaupthing to tide it over and said it was negotiating a $5.4 billion loan from Russia to shore up the nation's finances.


The speed of Iceland's downfall in the week since it announced it was nationalizing Glitnir bank, the country's third largest, caught many by surprise despite warnings that it was the "canary in the coal mine" of the global credit squeeze.


Famous for its cod fishing industry, geysers, moonscape and the Blue Lagoon, Iceland was the site of the Cold War showdown in which Bobby Fischer of the United States defeated Boris Spassky of the Soviet Union in 1972 for the world chess championship. Last year, Iceland won the U.N.'s "best country to live in" poll, with its residents deemed the most contented in the world.
No more.


Despite sunny skies Tuesday after three days of unseasonably cold weather, Reykjavik's mood remained grim — cafes were half-empty, real estate agents sat idle, and retailers reported few sales.


"I'm really starting to get worried now. Everything is bad news. I don't know what's happening," said retiree Helga Jonsdottir as she headed to a supermarket.


Icelanders are also beginning to question how a relative few were able to generate the disproportionate wealth — and associated debt — that Haarde has warned puts the entire country at risk of bankruptcy.


Iceland's reinvention from the poor cousin in Europe to one of the region's wealthiest countries dates to the deregulation of the banking industry and the creation of the domestic stock market in the mid-1990s.



Those free market reforms turned Iceland from a conservative, inward-looking country to one of a new generation of internationally educated young businessmen and women who were determined to give Iceland a modern profile far beyond its fishing base.
Entrepreneurs become its greatest export, as banks and companies marched across Europe and their acquisition wallets were filled by a stock market boom and a well-funded pension system. Among the purchases were the iconic Hamley's toy store and the West Ham soccer team.



Back home, the average family's wealth soared 45 percent in half a decade and gross domestic product rose at around 5 percent a year.



But the whole system was built on a shaky foundation of foreign debt.


The country's top four banks now hold foreign liabilities in excess of $100 billion, debts that dwarf Iceland's gross domestic product of $14 billion.



Those external liabilities mean the private sector has had great difficulty financing its debts, such as the more than $5.25 billion racked up by Kaupthing in five years to help fund British deals.



Iceland is unique "because the sheer size of its financial sector puts it in a vulnerable situation, and its currency has always been seen as a high risk and high yield," said Venla Sipila, a senior economist at Global Insight in London.



The krona is suffering in part from a withdrawal by a falloff in what are called carry trades — where investors borrow cheaply in a country with low rates, such as Japan, and invest in a country where returns, and often risks, are higher.



After watching the free-fall for several days, the Central Bank of Iceland stepped in Tuesday to fix the exchange rate of the currency at 175 — a level equal to 131 krona against the euro.



Haarde said he believed the measures had renewed confidence in the system. He also was critical of the lack of an Europe-wide response to the crisis, saying Iceland had been forced to adopt an "every-country-for-itself" mentality.



He acknowledged that Iceland's financial reputation was likely to suffer from both the crisis and the response despite strong fundamentals such as the fishing industry and clean and renewable energy resources.



As regular Icelanders begin to blame the government and market regulators, Haarde said the banks had been "victims of external circumstances."



Richard Portes of the London Business School agreed, noting the banks were well-capitalized and had not bought any of the toxic debt that has brought down banks elsewhere.



"I believe it is absolutely wrong to say these banks were reckless," said. "Quite the contrary. They were hugely unlucky."

Non-Muslims Favor Islamic Finance

CAIRO — Islamic finance, an industry picking up steam worldwide, is increasingly appealing to non-Muslims who find the Shari`ah -compliant service much fairer than traditional banking. "The terms are better than on conventional loans," David Ong-Yeoh, a Malaysian public relations executive, told the New York Times on Thursday, November 22.

Islam forbids Muslims from receiving or paying interest on loans.

Shari`ah-compliant Islamic banking operates by sharing profit or loss between the bank and its clients.

Financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Ong-Yeoh, 41, is one of many non-Muslims opting for a growing range of Islamic products offering competitive returns.

He first sought a 30-year fixed loan from an Islamic financial institution for his home. He later took another Islamic loan for his car.

"It’s just taking advantage of the system."

Ong-Yeoh is not alone.

E-lene Kee, a Buddhist corporate lawyer, advises clients to use Islamic loans to finance construction projects.

"We look at these things just like Apple or Berkshire Hathaway."

At Kuwait Finance House’s Malaysian unit 40 percent of the depositors and 60 percent of its borrowers are non-Muslims.

"It’s about respecting the interests of the different parties, avoiding taking advantage of any situation of any counterparty and putting in place fair treatment," explains Rasheed Mohammed al-Maraj, governor of the central bank of Bahrain.

In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and Islamic derivatives.

Islamic bankers cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Booming

Islamic finance is already one of the fastest growing sectors in the global financial industry.

Hang Seng Bank, the second largest bank in Hong Kong and a subsidiary of global banking giant HSBC, launched on Thursday the Hang Seng Islamic China Index Fund, Hong Kong's first Islamic fund.

"The Fund will help investors capture the potential investment returns generated by growing international interest in these markets," said William Leung, general manager of the bank's personal financial services and wealth management.

Hang Seng is only the latest in a long list of international institutions, including Citigroup, HSBC and Deutsche Bank, going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

In Asia, Islamic finance is growing in double digits, with predominantly-Muslim Malaysia effectively establishing itself as a regional, if not global, hub.

Indonesia, Thailand and Singapore are also among the countries promoting Islamic finance.

In the Middle East, Saudi Arabia’s largest lender, National Commercial Bank, overhauled its entire retail business to make it Shari`ah-compliant.

Tunisia and Morocco have also authorized their first Islamic banks this year.
Shari`ah -compliant loans and bonds are already available in the US and Britain has decided to do the same.

"This is an industry on its way from a niche industry to becoming a truly global industry," Khawaja Mohammad Salman Younis, the managing director for operations in Malaysia for Kuwait Finance House, told the Times.

"In the next three to five years you’ll see Islamic banks coming out in Australia, China, Japan and other parts of the world."



Related Links:
· Debt-ridden Americans Change Lifestyle
· Islamic Banks Withstand Mortgage Crisis
· Islamic Loan Funds London Real Estate
· Islamic Finance fulfills US Home Dream
· Islamic Loans Serve Non-Muslim Malawians




CNBC World - Islamic Finance: Applying religion to economics - http://www.youtube.com/watch?v=xsyWh1DLIUg

Pk_#2 said:

Has any one heard the credit crunch song? =P

I didn't think a 'Credit Crunch' Thread would get THAT many views!

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probably because of the articles i keep posting on isamic finance

Look at these Kuffar. They are changing their laws just to attract Islamic finance so they can get money, but when it comes to muslim women covering up then these kuffar create laws to stop them. hypocrites only love money.

France eyes Islamic finance

PARIS — France's recently-announced readiness to clear hurdles to Islamic finance reflects a desire to jump on the wagon of the globally-booming industry, analysts believe.

"It's a strong signal and the players are listening," analyst Emmanuel Volland of the ratings agency Standard and Poor's told Agence France Presse (AFP) on Tuesday.

France has recently announced plans to adjust its economic and legal frameworks to accommodate Islamic banking activities.

Economy Minister Christine Lagarde has briefed Gulf investors on steps "to make (their) activities as welcome in Paris as they are in London and elsewhere."

The government is expected to announce fiscal and legal adjustments to accommodate the Shari`ah-compliant industry before the end of July.
The modifications will facilitate the issuance of Islamic bonds (Sukuk) and structured real estate transactions.

Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
France, home to seven million Muslims, the biggest Muslim minority in Europe, currently does not offer Islamic banking services.

Challenges

Volland noted that Lagarde's address to the Gulf businessmen was "the first time that a representative of the state has said publicly that she is favorable to the development of Islamic finance."

Islamic finance is one of the fastest growing sectors in the global financial industry.

In defiance of the credit crunch, the global Islamic finance market has grown about 15 percent in each of the past three years, and is now worth about $700 billion worldwide. Its assets are predicted to grow to $1 trillion by 2013.

Renowned world banks like Citigroup, HSBC and Deutsche Bank, as well as financial capitals like London, Tokyo and Hong Kong, are all going into the Islamic banking business.

Analysts believe France wants a main share of the Islamic finance cake by attracting some of the Gulf-based investments currently flowing to London and other European capitals.

They maintain that France's road to establish a leading position in the Islamic finance industry would need more than fiscal and legal adjustments.
The government pronouncements "are not in themselves sufficient to ensure the blossoming of Islamic finance here," Anwar Hassan from the U.S. credit rating agency Moody's told AFP.

He explained that Paris should not be content simply to reduce "legal or fiscal irritants" but should, for example, issue sukuk just as Britain plans to do next year.

Experts also believe that the challenge is not purely technical or limited to establishing an infrastructure receptive to Islamic finance.

Hassan says that convincing the French public of the soundness of Islamic finance would be a real test.

But he believes that offering Islamic banking would provide an attractive alterative to French companies currently penalized by increasingly costly bank credit.

The task, contends the expert, will be to show that Islamic finance offers "an ethical, modern finance alternative."

Source: IslamOnline

islamirama said:

probably because of the articles i keep posting on isamic finance

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AsSalamOAlaikum WaRehmatuAllah WaBarkatuhu

Akhi, its kool you post sooo many good articles on islamic finance, so much to learn about Islam!!!!

Ahki are all banks islamic as they say that are :? Wth the issue of bonds, a lot is simply un-islamic:unhappy:, hummm looking for a reference though lol

FiAmaaniAllah

Australia: Finance for a new world


Islamic finance is becoming a major area now even outside Islamic jurisdictions. Amal Awad takes a look at the first steps in Australia to create financial products compliant with Shariah law.

Arguably, the quintessential Aussie dream has always been to “own your own home”. With mortgages offered at all major banking and finance institutions, it’s certainly an attainable – albeit costly – one for many Australians. However, until recently, for many Australian Muslims this dream has proven even more difficult to realise due to the Islamic prohibition on dealing with interest.

Given that all Western banking and regulatory systems deal in interest, it has proven a significant challenge to develop and deliver sound “Shariah-compliant” products that will cater to observant Muslims’ unique needs.
Certainly, Islamic finance is gaining momentum and attention on the global stage. Besides catering to the Muslim markets throughout the world, particularly in the Middle East and South-East Asia, the combination of ethical, social and financial considerations make Islamic finance an increasingly attractive proposition.

Reports estimate there are approximately 300 Islamic financial institutions worldwide with assets amounting to more than US$300 billion ($333 billion) and financial investments estimated at US$400 billion ($445 billion). In 2006, there were 126 Islamic equity funds collectively valued at US$16 billion ($18 billion). The US is also host to a growing Islamic mortgage market.

Still, while increased demand for halal (permissible) investment and lending options has precipitated an influx of Shariah-compliant transactions overseas, the Islamic finance industry in Australia is small by comparison. We’re yet to see, for example, the establishment of an Islamic bank, and there are no halal mainstream superannuation funds or insurance options (the Islamic concept of mutual insurance takaful) for Muslim consumers.
Some might argue this is due to a lack of demand, yet there is no denying that Islamic finance is already taking shape in Australia – particularly in home lending.

KPMG has recognised the international growth in other areas too, and is currently involved in promoting Islamic finance to potential clients here.
“We’ve got a large Islamic finance group based in London and Malaysia – they’re the two main centres. In Australia ... we’ve been having some chats with the major banks,” says KPMG’s Andrew Reynolds, associate director, financial services, based in Perth.

“We’re doing some demographic studies and essentially we’re putting together a business case for [Islamic financial transactions] here.” While KPMG don’t offer financial services in Australia themselves, they act in an advisory or audit capacity to institutions that do offer them.

matter of interest

Beyond issues of ethical investment, Islamic finance develops and offers various systems designed to adhere to strict financial principles. This means no interest and favours a “profit-sharing” model and the sharing of financial risks.

Specifically, Muslims are instructed not to deal with riba. This is most simply defined as “interest”, although its meaning runs deeper. “Different jurisprudential traditions have different perspectives over what exactly constitutes riba. When I’m presenting on it, I say it’s normally defined as being interest but there are shades of grey,” says Reynolds, who has developed a level of expertise in the area of Islamic finance.

In addition to establishing Islamic finance initiatives with clients, Reynolds is a contributor to Business Islamica magazine in Dubai, and in May 2007 he attended the World Islamic Funds Management conference in Bahrain as a speaker.

“In Australia we see two separate markets,” explains Reynolds. “One is the domestic Australian Muslim; those who live here, work here and require financial services. The other is essentially offering services to Muslims resident overseas.”

In the Persian Gulf alone there exists a pool of investable funds – estimates have it upwards of US$50 billion ($56 billion). “Obviously because they can’t take interest, when the funds are sitting uninvested, they’re completely idle. So part of what we can do is to work with our practices in Bahrain [and] Dubai ... and say ‘These are the investment opportunities for these funds’. And then work with our domestic clients who require funds to invest them here.”

So far, Islamic finance transactions are being offered in Australia by at least two small institutions. Iskan Finance (Iskan) and the Muslim Community Co-operative (Australia) Ltd (MCCA). Both offer mortgages based on Islamic systems of lending for homebuyers. With endorsement from Islamic scholars, their products are promoted as Shariah-compliant and primarily cater to the Muslim market.

“Islamic finance is not a new phenomenon,” points out Neil Aykan, MCCA’s public relations manager. “The system has made a dramatic comeback in the past 20 years, fuelled [in part] by Islam emerging as the world’s fastest-growing religion, with more than 1 billion followers worldwide.”
In fact, MCCA has been running since 1989, as a credit provider and mortgage originator. Today it boasts 7,000 member shareholders who are also the customers of its finance and investment products.

“It is the product of the collective effort of Muslim community leaders, accountants, bankers and Islamic scholars over the past decade to develop financial solutions that meet the religious requirements of practising Muslims within a conventional framework,” says Aykan. “There is a huge demand both here in Australia and globally, due to the total potential size of the Muslim market and also due to Muslims now rediscovering their Islamic values.”

Its competitor, Iskan, was established in 2001 by econometrician Malik Helweh. Having worked in the Persian Gulf for more than 10 years, he gained experience working with Islamic bankers. “I identified the need to deliver a very high quality and a competitive housing finance instrument to enable Australian Muslims to own their own homes, exactly as all other Australian aspire,” says Helweh. Working throughout Australia, Iskan offers housing finance products that are Shariah-compliant. “We are constantly researching the market and endeavour to produce appropriate funding instruments to satisfy the ever-growing community and its financial needs.”

With 2006 census figures numbering Australian Muslims at just over 340,000, there is a sizeable market, and these providers confirm that there is also substantial demand.

“For years Muslims have been using the conventional interest-based system due to a lack of choice. Today they have a real choice,” says Aykan.

He adds that MCCA is a competitive option because they do not prescribe ongoing fees and charges for their transactions, and they offer competitive rates. There is also a social and civic conscience. “MCCA is actively involved in the community, as it’s owned by the community,” says Aykan.

“There is a market here,” confirms KPMG’s Reynolds. But he is looking beyond basic banking and lending options. “What I’d like to be able to do is to work with our clients to bring to that market an appropriate array of products. They’re not difficult, they’re not expensive, and they may well be attractive to those of us who aren’t Muslim. A fully invested equity fund is likely to produce higher returns than one with a large chunk of bonds in there. They’re just going to be more volatile,” he explains.

The response

The emergence of halal financial products in Australia is not without its share of scrutiny and resistance however, and debate surrounding these transactions is certainly robust. Even though these products require certification from qualified Islamic scholars in order to be deemed Shariah-compliant, globally and locally, many question just how “halal” some of these transactions really are.

“The main expression of concern is that we source our funds from an external, non-Muslim run investment firm,” says MCCA’s Aykan. “Ideally, we’d like to source our funds from an Islamic bank. But until an Islamic bank or an Islamic investment firm sets up shop in Australia, we don’t have an alternative.”

Originally, MCCA’s funding was all their own. He points out, however, that while they’ve had to source funding from a local investment firm to meet growing demand, that firm doesn’t provide money derived from Islamically impermissible transactions.

But given the diversity of transactions internationally, debate concentrates on more than mortgages.

“I would agree that there’s some cynicism and in some cases there may be grounds for that,” says Reynolds. “It is fairly complex which is why I feel people like myself who are experienced in financial services have a role to play. I’m not well-versed in Shariah, but what I can do is work with the scholars to [explain] the sorts of issues that we typically see.”

Melbourne-based Muslim writer Amir Butler agrees. “Islamic finance is one of the most complex fields within Islamic law and therefore it is naturally controversial.”

In addition to concerns about the source of funds, as well as differences in scholarly opinion about fundamental aspects of Islamic finance, these products “are often more expensive than normal products because there is an increased transactional cost associated with them”, he says.

Overseas, Butler says some products resemble normal riba-based products. For example, they might replace the word “interest” with “profit”, which he says is a fairly superficial change. “They are often described by some scholars as engaging in hila (trickery) by trying to turn a haram (forbidden) transaction into a halal one by playing with words and terms.”

Having written on the issue in the past, Butler notes the often controversial debate on these issues, but he doesn’t think it’s necessarily well-informed.

“Most people lack the Islamic knowledge to properly assess these products and many of those who might possess some knowledge about the Islamic aspects often lack in their understanding of finance or the legal framework in which Islamic banking must operate in the West,” he says.

Helweh, who says Islamic financial issues provoke both positive and negative responses from the community, similarly suggests that much of the debate stems from a lack of knowledge on Islamic finance in Australia. He says Iskan has scholarly backing. “Initially Iskan sought international help from individual scholars as well as Al-Azhar University [in Egypt]. We then formed our own Shariah committee, which included local scholars. However, we maintained our links to the international scholars and we seek their opinions and advice whenever required.”

While MCCA’s scholarly advisers have approved their products, Aykan points out that other scholars may disagree with these rulings. “[Our advisers] have exercised their expert reasoning and ruled that MCCA’s product offerings as structured are permissible. This doesn’t preclude the possibility that other ... scholars may exercise their own independent reasoning and arrive at a different ruling.”

Ultimately, Muslims may scrutinise these products, but it may simply come down to what the local sheikh says. While some will support the initiatives of existing institutions, others might forbid them.

“The problem,” says Butler, “is that there isn’t a great deal of knowledge about these issues in Australia and so you often end up with the perverse situation where all these people are clambering to denounce particular products but can never seem to explain what exactly needs to be done to make them halal because they either don’t know or don’t understand that legislative and/or economic context that these products must operate in.”

Mind the gaps

Iskan’s Helweh is also at the helm of SalicSuper, a public superannuation fund which aims to provide Australian Muslims with access to halal superannuation investment. “The product ... has been receiving significant support from the community and financial planners,” he says. “Our recent profits on all investment options within the fund were very encouraging indeed.”

Helweh has certainly identified a major gap in Muslim-friendly finance options. In addition to a dearth of halal insurance products, none of the major superannuation funds offer halal investment products.

“I don’t think any of the major superannuation providers have any products that are free of interest, never mind alcohol products and so on,” says KPMG’s Reynolds, referring to the Islamic prohibition on investing in alcohol, tobacco and gambling products. He adds: “None of the managed investment schemes [have Shariah-compliant certification] – but quite a few of them are actually, I believe, halal.”

Reynolds suggests that a halal superannuation product is, at its simplest, another form of ethical investment. “A fully invested ASX 200 equity product, for example ... making sure that there [are] exclusions in there – so no Carlton United, no Fosters, etc, would work. And I think certification for that sort of product would be fairly simple. So there’s no real impediment to putting it together, it’s just that nobody’s done it.”

Another gap exists in the absence of basic Islamic banking options. Iskan and MCCA are not authorised deposit-taking institutions, however, as Reynolds points out, there are still some options for consumers not wishing to deal with interest. “There are several products that a conventional bank already offers that are halal. [One] is a non-interest bearing cheque bank account. That’s perfectly acceptable. It pays no interest, it receives no interest and is a product that works.”

Najm said:

AsSalamOAlaikum WaRehmatuAllah WaBarkatuhu

Akhi, its kool you post sooo many good articles on islamic finance, so much to learn about Islam!!!!

Ahki are all banks islamic as they say that are :? Wth the issue of bonds, a lot is simply un-islamic:unhappy:, hummm looking for a reference though lol

FiAmaaniAllah

Click to expand...

:wasalamex

No bro, not all banks are islamic. There are banks that claim they are islamic but they are not, they just coined another term for riba or other unilslamic transaction trying to excuse it as permissible. And then there are banks that are islamic in the pure sense of the word and do try to conduct everything in a shar'iah based guidelines.

The same goes for companies, there are some companies out there that have islamic bands and other investing options a Muslim can utitilze. You would have to search on what they offer and then check on how much islamically acceptable that is.

Here' are good refrences to look at inshallah

http://www.lariba.com/knowledge-center/riba-lariba-difference.htm

http://www.ruf.rice.edu/~elgamal/files/primer.pdf