The Islamic Post Blog

Islamic Financial System Affords Stability in the Midst of Economic Turmoil by Khalida

Usury-Free Sharia Compliance Proves a Blessing as Islamic Investing and Banking Thrives, Despite Tailspin of Interest-Based Systems

By Umm Abdul Malik
Islamic Post Staff Writer

While the Federal Reserve, U. S. Treasury, European Union, G-8 and scores of financial experts work tirelessly to organize, and re-organize a multi-billion dollar financial parachute for the plummeting interest-based financial system, Islamic investing and banking is proliferating by leaps and bounds, and even flourishing –so stated Credit Suisse senior banking associate, Fares Mourad, in a recent Reuters report. Credit Suisse of Switzerland, a prominent European wealth management institution, affirms that its Islamic banking business is growing by double digits. The crisis of the banking world has actually boosted Islamic financial commerce, luring investors who seek assets that are not affected (and are not predicted to be affected) by the havoc that has hit the rest of the financial world.
“If you invest in Islamic finance products, you tend not to be sensitive to developments (ups, downs, and crashes) in interest rates.  I’ve seen asset managers in the United Kingdom who are saying they would like to include Islamic investments in their total asset allocation,” Mr. Mourad intimated to European Wealth Management correspondent, Douwe Miedema, even though investors keen on strict adherence to the Islamic laws regarding commerce and financial transactions do not have as broad a variety of financial instruments with which to maneuver as their interest-bearing counterparts in the general marketplace.
Islamic Economic Principles are Rooted in Revelation.
The framework for Islamic financial dealings is contained within the text of the Holy Qur’an, and the laws derived from the commands of the Almighty Creator that are contained in the sacred text. Many of the injunctions related to commerce and finance were introduced to the society of the Holy Last Messenger of Islam, Muhammad, may the peace of the Almighty be upon him, and were immediately implemented as guidelines for Islamic living, as they were supported by Divine sanction and authority.
The foremost pillar of Islamic finance, and the source of much of its allure, is the prohibition of charging or taking interest. Another regulation requires risk-sharing between the extender of venture capital and the entrepreneur.
In addition, Islamic investing dictates that businesses be legal in Islam, i.e., “Sharia-compliant:” in no way involved in production, sales, or trading of:  pork or its by-products; alcoholic products; immoral or lewd products, literature, and media; interest-based banking and financial services like insurance.
An umbrella of social responsibility covers the Islamic financial system and those who conduct their business under its cover. To further illustrate, there is no profit for the investor if there are losses for the business. A key element to the current global financial disaster is businesses devoid of profit in a situation exacerbated by the charging of interest on principle.
The Dow Jones Islamic Index.
With the ranks of Muslim investors swelling rapidly as the Muslim population in the United States tops six million, and as overseas Muslim investors seek Sharia-compliant investment opportunities and financial products, the Dow Jones financial news corporation compiled the first American Shari-compliant index – companies whose business practices conform to Islamic standards.
In 1999, Dow Jones employed a board of six Sharia scholars who would review and screen companies. Merck & Co., Pfizer Inc., Microsoft, and Hewlett-Packard were among the 1,800 companies out of a total of 5,000 that were included in the first Islamic index.  There are now more than 60 Dow Jones Indexes that track and chart Sharia-compliant stocks and bonds.
Eric Meyer, Connecticut financial advisor with the investment fund Shariah Capital, advises that western financial institutions and banks need to have Shariah-compliant products or risk losing market share. Some investment firms retain a Shariah Board to review and determine whether a particular type of financial transaction complies with the Islamic law.
As more banks offer Muslim and other customers Islamic lending and investment options, more advisors trained in the intricate, and sometimes complex, rules that govern Islamic finance are in demand. Three prominent companies advise clients regarding Islamic investing:  Saturna Capital, Azzad Asset Management, and Allied Asset Advisors.
The fundamentals of the economic system developed by the Muslim world over centuries has indeed provided the modern world unexpected guidance at a critical period in time, illustrating the Divine Wisdom in a way of conducting commerce with conscience and social responsibility.


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