By Raheemah Atif
Islamic Post Staff Writer
(IP) –Islamic financial institutions are weathering the economic storms by most accounts, according Professor Ibrahim Warde of the Fletcher School of Law and Diplomacy at Tufts University, who compared the increase in Islamic economic institutions and their unique financial products with the dramatic resurgence of Muslim women wearing their traditional head scarves.
Although much of the Middle Eastern financial structure is part and parcel of the western conventional finance, which includes involvement with interest-related dealings, 2007 saw growth in the Islamic financial sector worldwide in an upwards spike of $900 billion dollars, Professor Warde explained. Accompanying this rapid growth, Islamic scholars who are knowledgeable in the detailed science of Islamic economics are in sharp demand as banking companies on both sides of the Atlantic, and beyond, seek more precise definitions and explanations of the demands of the Islamic law system upon financial transactions.
Islamic bonds, or sukuk, have been among the most prolific of financial products over the last two years. A bond is a loan to an investment group or company, who then rents the money to a business that may need capital for various reasons. The price of the bond is repaid in a specified time period, with the additional profit of the “rental fee” paid to the person who originally purchased the bond. The critical feature of Islamic investment is that it is illegal to “sell” debt. Sukuk is now being re-examined by Shari’a financial scholars to assure its current form is fully in compliance with the dictates of the Islamic law.
Throughout the Muslim world, homes are being sold by means of Islamic financial transactions, i.e., in accordance with the Shari’a legal requirements. Dr. Muzzammil H. Siddiqi, stated, by way of advertising his services, that Muslims should, wherever possible, opt to utilize Islamic banks for home financing since it is now readily available. The murabahah transaction (as it is called) is the Islamic transaction for home buying or other types of large purchases, where the bank would actually purchase the property for the buyer, and attach its fees onto the purchase price. The buyer will then pay, in installments, the price agreed upon by the bank and the buyer for the purchase – without riba, or interest on the installments.
The University Bank of Ann Arbor, Michigan, which has done nearly $80 million dollars in Islamically approved residential and business mortgages for Muslims in 15 states, was recently recognized by the American Bankers Association for its service to its Muslim clients. The bank was also rated “Outstanding” by the FDIC (Federal Depositors Insurance Corporation) for community service and for its commendable reinvestment in the community. It features Shari’ah compliant ‘Deposits of University Bank and Mortgage Alternative’ (MALT) products, and also has an investment division that offers SC (Shari’a compliant) Mutual Funds, or investing groups, to its Muslim and non-Muslim customers. While the stock market recorded one of its worst weeks, and General Motors slid towards bankruptcy, the University Bank recorded one of its best periods ever, completing 11 home sales to Muslim clients, with four more closings expected the following week. The New York Times reported that Steven Ranzini, president of University Bank, recognizes a fringe benefit of serving the Muslim community, in that clients who navigate through the process to acquire a home via a Shari’a compliant mortgage, has done so based upon his own religious convictions that the client is not very likely to default as it would be considered almost a sin to do so. In the words of Mr. Fariz Huzair, who recently purchased a home in Michigan, “In my heart, I’m doing this because it’s the command of my Creator …you have a standard you’re supposed to live up to.”
Filed under: Business/Economy, Front Page News, Interfaith, International, May Volume I - 2009, World | Tags: Islamic Finance
The Vatican recently claimed banks should look at the ethical rules of Islamic finance to restore confidence amongst their clients during this time of global economic crisis.
“The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,” the Vatican’s official newspaper L’Osservatore Romano said.
Author Loretta Napoleoni and Abaxbank Spa fixed income strategist, Claudia Segre, say in the article that “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral.” Sukuk may be used to fund the “car industry or the next Olympic Games in London,” they said. They also said that profit share, gained from sukuk, may be an alternative to interest. They underlined that sukuk system could help automotive sector and support investments in the area of infrastructure. The Islamic sukuk system is similar to bonds of the western system; however, money is invested in concrete projects and profit share is distributed to clients instead of interest earned.
L’Osservatore Romano’s editor, Giovanni Maria Vian, said that “the great religions have always had a common attention to the human dimension of the economy,” Corriere della Sera reported.
Source: Brussels Journal.
Staff Writer Jamaal A. Waahid contributed to this report.
Filed under: Business/Economy, January Volume I- 2009, World | Tags: Islamic Finance
Positive Economic Benefit May Outweigh Opinions of Opponents
By Raheemah Atif
Islamic Post Staff Writer
Western financial analysts are leaving no stone unturned in the quest for a cure for their potentially terminal banking/investment leviathan, including close examination of the Islamic system of finance. ArabNews reported that representatives of the U.S. Treasury Department, along with a goodwill ambassador, attended a press conference late last year, where they expressed keen interest of the United States to learn how Muslims operate banking and financial commerce within the confines of Sharia, the Islamic legal codes. American economists are admitting that there are salient features of Islamic finance structures that are indeed worthy of inclusion within a new cache of concepts with which to build a less vulnerable financial system for western capitalists, and their international financial associates.
Robert M. Kimmitt, U.S. Deputy Treasury Department Secretary and U.S. Ambassador Ford Fraker met in an official capacity with finance officers, various investors and bankers, in preparation for the G-20 summit, which includes member nations Indonesia, Malaysia, and Turkey. Kimmitt noted at that time, “Islamic banking…is a subject that is often dwelt in the public and private sectors.”
American stock-trading firms, such as Charles Schwab and TD Ameritrade, are offering Shariah-compliant investments in U.S ventures like Western Digital, Southwest Electric, and Apple Computer; so are investment companies like Azzad Ethical Midcap Fund, and Amana Mutual Funds Trust. And Visa International, the largest payment solutions company in the world, is offering Muslim customers of Al Hilal Islamic Bank an array of Shariah-compliant credit and debit products in a new partnership with Al-Hilal.
Not all Americans, however, understand the benefit that Islamic financial strategies could bring to western finance – as voiced on Foxnews.com, by critic Frank Gaffney, who mistakenly equates gleaning some viable economic ideas with the influence of Islam in the American way of life.
Nevertheless, Fox News pointed out that, whatever the case may be, the government of the United States is interested in the Islamic commercial and financial structure.
An “Islamic Finance: 101” course was held in Washington, D.C., in early November to enlighten government officials regarding the rudiments of Islam’s financial system. The no-interest finance method, with its additional moral investment parameters, boasts worldwide participants and products –as witnessed by Nicholas Kaiser of the Amana Mutual Funds Trust of Washington state. Mr. Kaiser’s financial products reportedly meet Shariah requirements. “Our shareholders are American,” claims Kaiser. We don’t take money from non-Americans because of money-laundering laws. We check and screen and verify every shareholder,” he remarked. Mr. Kaiser, who disagrees with Mr. Gaffney’s assertion of a threat to the American way of life, continued: “We simply take people’s money, invest it and give it back to them when they want it. We don’t try and convert the country. We don’t have any religious position. We aren’t evangelical. We aren’t zealots. We’re money managers.” “I happen to be Episcopalian,” he added.
Finance experts estimate the Islamic banking industry is pumping hundreds of billions of dollars into the world economy – a small percentage of the total global commerce, but possessing great potential with growth of more than 30% in 2007.
Filed under: Business/Economy, December Volume 1 - 2008, Interfaith, International, World | Tags: Islamic Banking, Islamic Economics, Islamic Finance, Sharia
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.