DR M: Islamic banking could be answer to global financial woes

Islamic banking should not be dismissed as a potential solution for the ongoing global financial crisis, former Prime Minister Tun Dr Mahathir Mohamed said today.

He said those who had put in place the current financial system used were in denial and did not want to admit that the system they have been using all these while were wrong and open to abuse.

“They try to patch up here and there with bailouts. But that is not going to solve anything,” Dr Mahathir told reporters at the Fourth International Convention on Takaful and Retakaful here.

“So in the process of trying to solve the problem, don’t dismiss any idea including Islamic banking. Maybe not the whole Islamic banking, but elements of it can contribute towards stabilising the banking system of the world,” he said.

Asked if he thought that if bodies like United Nations are seeing a need for change by setting up a high-level task force to examine possible reforms of the global financial system, Dr Mahathir said: “There is a political element there.”

Earlier in his keynote address, he said two Malaysians were picked to join the high-level task force, with one of them being the Central Bank governor and another a critic of the government.
“They pick a person whom is against the government. If they want to do something, they already have an agenda,” Dr Mahathir “They must find a person who is against the government they don’t like and he is the one who is going to advise them. And he is going to be wrong because he has never done anything positive... he’s merely a critic and to be a critic is very easy,” he said.

Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz and Malaysian economist Jomo Kwame Sundaram have been appointed members of the UN’s Commission of Experts on Reforms of the International Monetary and Financial System.

Asked if he thought the RM7 billion stimulus package announced by the government was enough to stimulate economic growth during these trying times, Dr Mahahtir said “It may contribute to something, but it is like a patchwork kind of treatment.” “You have a headache because you are sick, and you just treat the headache.

That is not good enough. You have to treat the whole body,” he said.

“So this RM7 billion Panadol given may solve the headache, but there are other parts of the body that are going to be very sick.” Asked about his thought of the current domestic economic situation and if it could withstand the global recession, Dr Mahathir said Malaysia as a trading nation would be affected.

“To say that we can withstand the effects of this terrible recession is wrong. There must be an impact because we are a trading nation,” he said.

“We have to sit down and think what has gone wrong with the rest of the world and how does it affect us. We exist by selling things to 200 different countries. That’s how we built our economy, in trade. If our trading partners are not doing well, we cannot very well do well,” he added. -- Bernama via NST

'Islamic banks in Malaysia likely to merge'

ISLAMIC financial institutions in Malaysia could merge in the next five years to compete with their conventional counterparts, says Maybank Islamic acting chief executive officer Ibrahim Hassan.

"This is because their current capital and asset size are small," he said at the Kuala Lumpur Islamic Finance Forum 2008 (KLIFF 2008) yesterday.

This is due to be a regional development, said Fajr Capital (Malaysia) managing director Rafe Haneef.

"We will see consolidation of Islamic banks in the GCC (Gulf Cooperation Council) eventually. It will also be seen in markets like Dubai, which have over 40 banks servicing commercial and retail sectors," he said.

Both were speaking at a session during KLIFF 2008 in Kuala Lumpur yesterday. -- NST, Published: 2008/11/19

KLIFF 2008 is being organised by the Centre for Research and Training and co-hosts by Labuan Offshore Financial Services Authority and Halal Industry Development Corp in collaboration with Dow Jones Islamic Market Indexes, International Institute of Islamic Finance and Messrs Hisham, Sobri & Kadir.

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Time to re-position Islamic banking & finance, says Najib

‘Time to globalize Islamic finance concepts’

KUALA LUMPUR: Islamic finance needs to quickly integrate itself into the international financial system and prove that it is a viable alternative to conventional banking, the prime minister said yesterday. By transforming itself into an essential element of global finance, he said Islamic finance would surely end its perceived position as a niche or boutique service.

However, Datuk Seri Abdullah Ahmad Badawi added that for it to effectively complement global finance, a sound legal framework, which would provide it with the credibility it required was crucial. “The consistent application of syariah must form the basis of all transactions, be it domestic or international.

"Practitioners of Islamic finance would do well to utilize the Islamic concept of hikmah (wisdom) to ensure successful reforms at the international level," he said in his speech at the official launch of Standard Chartered Saadiq Bhd, the Islamic finance subsidiary of Standard Chartered Bank Malaysia Bhd.

StanChart's Saadiq to boost Islamic assets

Abdullah said Malaysia was positioned to lead an attempt to reform global banking by infusing concepts and themes from Islamic finance. He said the country was ready to act as a knowledge centre for Islamic finance and pointed to the International Centre for Education in Islamic Finance (Inceif) and the International Shari’ah Research Academy (Isra) as examples of Malaysia's commitment to developing the specialty.

Abdullah also said Islamic finance was one area where the world's Muslims could forge vital links with non-Muslims. "In business, we are poised on the brink of an old way of life which is dying and a new way of life that is in the process of being born.

"Behind lies an industrial and financial age that lavished wealth, but left the planet polluted and societies fragmented.

"I firmly believe that there exists tremendous opportunities for Islamic finance to come to the fore to lead the financial fraternity into a new growth era." -- By: Marc Lourdes, NST

'Global crisis a chance for Islamic banking'

The global economic crisis presents an opportunity for Islamic banking to show it is a viable alternative to conventional finance, Malaysia's premier said according to reports Wednesday.

Prime Minister Abdullah Ahmad Badawi said the meltdown showed the need for laws enshrined in Islamic banking, which prohibits speculation and high levels of debt, and which has so far been relatively unscathed by the credit crunch.

"These ethical and moral safeguards are missing in the conventional system," Abdullah said in a speech, adding that the crisis was caused by trade in loans which few truly understood.

"In reality these repackaged subprime loans were nothing more than artful works of deception that fed the speculative excesses and hubris in the financial markets," he said at the launch of an Islamic law research academy.

However, he called on Islamic banking -- a booming 1.0 trillion dollar global industry -- to work on clarifying and resolving conflicts in interpretation over what products are allowed under religious laws.

"The Islamic finance community should not be complacent or unduly proud. We must continue to critically evaluate ourselves," he said according to the state Bernama news agency.

"For instance, have we truly established an alternative system or are we still very much mimicking the established conventional system?"

Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling, so highly complex instruments such as derivatives and other creative accounting practices are banned.

Transactions must be backed by real assets, and because risk is shared between the bank and the depositor there is an incentive for the institutions to ensure the deal is sound.

There have been calls for the conventional banking industry to take a leaf out of the book of Islamic finance, which also shuns investments in gaming, alcohol and pornography in favour of ethical investments. -- Agence France-Presse - 11/12/2008 4:13 AM GMT

Banking on Allah banking escapes fallout of global financial crunch

“The collapse of the capitalist system based on usury and paper and not on goods traded on the market is proof that it is in crisis and shows that Islamic economic philosophy is holding up. “ -- al-Qaradawi

Islamic banking has largely escaped the fallout from the global financial crisis, thanks to rules that forbid the sort of risky business that is felling mainstream institutions. But experts say that because of its heavy reliance on property investments and private equity, the booming 1.0 trillion dollar global industry could be hit if the turmoil worsens and real assets start to crumble.

"In the current financial turmoil, it is interesting to note that Islamic financing may have prevented a majority of the mess created by the conventional banking and financial institutions," Kuwait Finance House said in a report. "The outlook for Islamic financing is bright and will likely take the lead in terms of providing funding for major projects as the conventional banking system reevaluates its business model."

The rules of Islamic banking and finance -- which incorporate principles of sharia or Islamic law -- read like a how-to guide on avoiding the kind of disaster that is currently gripping world markets.

(1) Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling, so highly complex instruments such as derivatives and other creative accounting practices are banned.

(2) Transactions must be backed by real assets -- not shady repackaged subprime mortgages -- and because risk is shared between the bank and the depositor there is an incentive for the institutions to ensure the deal is sound.

(3) Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.

"Islamic banking has, thus far, remained positive, despite the current challenging global financial environment," said Zeti Akhtar Aziz, the central bank governor of Malaysia, which is Southeast Asia's leader in Islamic banking. Zeti said this month that because of the slowing global economy, plans for Islamic "sukuk" bonds had been postponed or scrapped by companies including Kuwait's Abyaar Real Estate Development Co. and Malaysia's Perisai Petroleum.

And Jennifer Chang, a partner at Pricewaterhouse Coopers in the Malaysian capital Kuala Lumpur, said that given the extent of the global crisis, Islamic banks may suffer damage despite their strong position. "Islamic banks, especially in the Middle East, got heavily into private equity and real estate investments, and a lot of loans may be backed by properties. So if the property market goes down, there will be an impact," she said. "If a borrower is not able to pay then the bank will foreclose and the question is -- can you sell the property in the market and at what value? These are issues which all banks can face."

There have been calls for the conventional banking industry to take a leaf out of the book of Islamic finance, which also shuns investments in gaming, alcohol and pornography in favour of ethical investments. Influential Sunni cleric Sheikh Yusuf al-Qaradawi earlier this month called on Muslims to take advantage of the turmoil to build an economic system compatible with Islamic principles. "The collapse of the capitalist system based on usury and paper and not on goods traded on the market is proof that it is in crisis and shows that Islamic economic philosophy is holding up," said the Egyptian-born, Qatar-based cleric.

In recent years the sector has broken out of its niche and been embraced by mainstream banks. As well as basic bank deposits and investment accounts, it has expanded into areas including equity funds, bonds and Islamic hedge funds.

Abhishek Kumar, a senior research analyst at Financial Insights, a company under market research and analysis firm International Data Corp (IDC), said recent events may further boost the sector. "More and more institutions will be interested in providing Islamic services to diversify their risk portfolio," he said, while warning that in the current financial storm there were no absolutely safe harbours. "We're not really sure what the real extent of the impact is, and whether we've passed the worst of it or not, But the extent is not going to be as bad as in the mainstream sector," he said. -- Agence France-Presse - 10/20/2008 1:18 AM GMT