Upgrade: Islamic Finance 2.0

April 1, 2010 by · Leave a Comment 

By Rushdi Siddiqui, Gulfnews.com

sharia_finance_dollar Future of Industry lies in move from sharia-compliant to sharia-based approach

Dubai : We are at an important crossroads in Islamic finance and banking, and I want to explore, in this column, the future of Islamic finance.

We hear about 1.5 billion Muslims, but has Islamic finance benefited the ‘man on the street?’ What is so ‘Islamic’ about Islamic finance?

Have we simply been putting an Islamic wrapper around conventional structures and products and placing a blessing them?

I’ve been in Islamic finance for more than a decade. This inaugural article will set the non-technical tone for the important areas I want to explore in the future, and I encourage the readers to comment as the Islamic finance community’s collective psyche, experience and insight will benefit the industry.

We in Islamic finance want to see a group blueprint of the industry going forward, including the building of two-way bridges — be it with South-east Asia or with Group of 20 (G20) countries.

Islamic finance is, at one level, for all those interested in “boring finance”, asset or project backed/based financing and non-turbo-charged investing (without derivatives and excessive leverage) in selected real economic sectors.

Islam does not necessarily have a monopoly on ethics because these are common shared values with other religions and philosophies. However, the former has ‘codified,’ via scholars, screens and structures into financial contracts having links to permissible real economic activities.

Sharia compliance

Among the 57 Organisation of Islamic Conference (OIC) countries, not one Muslim country in the last 40 years has ‘Islamised’ its economy for general acceptance; not Sudan, Pakistan or Iran.

The $1 trillion (Dh3.67 trillion) industry operates in a world economy of inter-connected interest rates, debt and other similar factors, hence Sharia scholars have allowed a permissible amount of impurity as long as the industry moves towards removing such impermissibilities.

Put differently, scholars, as Sharia gatekeepers, are seeking progress and prosperity, which is different from modernisation. Thus the reference rates in Islamic mortgages, syndicated loans, sukuks and other financing are the efficient cost of capital credit of the London interbank offered rate (Libor) and/or the Treasury.
However, where is the industry with a methodology for an Islamic interbank offer rate (Ibor)?

There are over 555 Islamic funds with $35 billion (Dh129 billion) of assets under management, and, if we focus on Islamic equity funds, the question that comes to mind is this: ‘What is the link between a Sharia-screened company from any of the five index providers to Islamic finance or a Muslim country?’

The screening results in a universe that can be deemed as a style of investing — ‘non-financial, low debt social-ethical investing.’

Thus, some of the Sharia-compliant companies include Microsoft, BP Amoco, Pfizer (with a bias towards energy, health care, and technology), yet what is their link or connection to Islamic finance?

Could such companies and, in the aggregate, present day Sharia-compliant Islamic indices, be deemed an economic indicator of Islamic finance in a Muslim country? We now need to look at Sharia-based Islamic indices.

IFIs and sukuks

We hear and read about 300 Islamic financial institutions (IFIs) in 75 countries, and the need for larger balance sheets to compete against the ‘big boys’ on the project finance deal table for instance, hence, a call for the consolidation or the creation of established Islamic mega-banks.

A concern with such an Islamic mega-bank revolves round whether it poses a systemic and confidence risk in the home country as concentrated exposure without many compliant-hedging mechanisms?

Is there a need to think about safety nets and stress tests before central banks allows for an Islamic mega-bank?

The sukuk market, roughly equated to Islamic bonds, is now worth over $107 billion, having been the locomotive of Islamic finance during the petro-liquidity spike.

However, recent bankruptcies, defaults, and restructuring exercises, have been portrayed by western media as the beginning of the end of Islamic finance.

In an embryonic industry, like the 40-year-old Islamic finance, these growing pains are welcomed and will actually strengthen the industry, as precedents become known and down-side risk is better understood.

Sukuk growth and development appear to be following the ‘path’ of the Eurobond market, and the International Finance Corporation (IFC) and General Electric (GE) sukuk issuances in late 2009 underline the merits of such financing in turbulence.

Contribution factor

We have a number of Islamic finance conferences, and a number of Islamic finance awards.

It is often strange to see or read when different conference organisers or magazines have, for instance, a ‘best Islamic bank’ award, and each names a different bank.

It has been said in certain quarters that some of these awards are driven by sponsorships rather than actual votes or, ideally speaking, real contribution to the industry.

At this stage in Islamic finance, awards should emphasise ‘contribution’ and not ‘best,’ as that latter implies mature and connected Islamic financial institutions globally.

The foremost contribution to Islamic finance has been made by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, and Governor Zeti Akhthar Aziz, and, obviously, the real Sharia scholars, regulators like the United Kingdom’s FSA, central banks like the Central bank of Bahrain, and conventional banks with windows and subsidiaries.

Shaikh Mohammad, a standalone stakeholder, raised the profile of Islamic finance globally via the Dubai brand before oil reached $140 a barrel, and Zeti, as a globe-trotting ambassador, made her a separate asset class in Islamic finance.

They have established the awareness and macro framework, and now the industry has to move towards Islamic finance 2.0.

Pulse of Islamic finance

One of the serious issues the markets are tackling is to how to find an effective, overall pulse of Islamic finance. In most instances, numbers such as $1 trillion and the like are used to demonstrate the awesome potential of this industry.

However, how can we really gauge what’s happening to the industry on a daily basis?

The path to Sharia-based Islamic finance is expected to have speed-bumps, pot-holes, diversion road signs, construction vehicles with signs such as ‘do not follow’, but lets raise the issues from Sharia-compliance to get to the destination of Sharia-based.

The writer is the global head of Islamic Finance & OIC Countries for Thomson Reuters. The views expressed in this column are his own and should not be attributed to his organisation.

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DIA Opens Islamic Art Section

February 28, 2010 by · Leave a Comment 

By Adil James, MMNS

As Muslims we always have great appreciation when our religion and the various expressions of our religion garner positive recognition and interest from respected non-Muslim institutions—sometimes in fact we take more pleasure from their taking notice than we do from recognition from our own Muslim institutions.  And so we Muslims take great pleasure in the recent exhibition at the Detroit Institute of the Arts (DIA), called the “Gallery of Islamic Art,” which was opened in a very exclusive event this past Saturday at the DIA at 5200 Woodward Ave. in Detroit.  This event was by invitation, with valet parking and a $250 fee for dinner, a black tie event attended by ambassadors and museum officials, and important and well-connected people from Detroit’s Muslim community.

The Islamic gallery itself is very interesting, and important as an expression of respect for Islam, however it is somewhat small, with about 1,000 square feet devoted to Islamic art—another slight detraction is that it seems to be a smorgasbord of Islamic art rather than an exhaustive or even organized look at Islamic art.  There is one large Persian rug, many examples of pottery and ceramics, several copies of Qur`an, and some collections of ahadith, but surprisingly without translations, and a video demonstrating the art of Islamic calligraphy.  There is perhaps as much space given to Christian and Jewish scripture (included as examples of Muslim tolerance, since they were made by Arabic speaking Jews and Christians living under Muslim rule) as there is to Muslim scripture in the exhibit.

There was some modern art which focused on Muslim themes, for example one painting by a modern Iranian painter on Sayyidinal Khadr (as)—who is mentioned in Qur`an.  Modern art on Muslim themes, however, is not strictly Islamic art.

There is nothing in the exhibit on Qur`anic recitation, which is a vital Islamic art.  There was to my noticing nothing from east Asia, or from central Asia, or from Africa.  There were no modern devotional musical forms represented.  There was to my noticing no poetry—one page of Rumi’s poetry in the original text would have been beautiful.  There was not clothing either—the entire exhibit could have been on Muslim turbans of various kinds and their meaning.  Or on kufis from around the world.  Or on any of many rich and different clothing  traditions from around the Muslim world.

There is very minimal calligraphy, which by itself could fill the entire museum with many different and beautiful forms of expression, from Chinese to Arabic to Turkish and even Japanese forms. In fact, likely 1,000 square feet would not be enough space to do a thorough exhibit of any one of several Islamic art forms, such as calligraphy, carpets, architecture, or pottery. 

But on the positive side, as a general approach the exhibit does show a long range of historical works up to the present, covering the past 600 years (including a Qur`an from the 1400s).  And the exhibit does show materials from several countries, although perhaps it centers on Iran a little bit more heavily than elsewhere.
The striking thing about this exhibit is first that Islamic art is in reality something that is in use in daily life, not something that Muslims hide from daily view, from the prayer carpets Muslims use, to the recitation they perform at specified intervals, to the buildings they live in and gardens they nurture, and the clothing they create.  And the natural and intrinsic beauty of this is different at a fundamental level from the concept of art as an icon that is produced and then ensconced in a museum for occasional admiration.

And, perhaps, another lesson from the exhibit is that Islamic art is something best demonstrated by Muslims themselves.  Still, the DIA has done something very gracious and important by devoting a substantial and expensive portion of its real estate to opening the world of Islamic art to museum visitors.

The DIA also opened itself to Muslims from around Detroit, including TMO, which is a very important gesture–when we as Muslims still face tremendous pressure from prejudice and ignorance–it is an enlightened act to show an Islamic art exhibit in this time.

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