WASHINGTON: The US-Qatar Business Council and the Bilateral US-Arab Chamber of Commerce hosted the 2nd Annual Islamic Finance Forum last week, offering much-needed insights into the growing use of Islamic financing and Shariah-compliant business contacts in the United States. The forum, held at the George Washington University Law School in Washington DC, featured academic, legal, banking and business experts analyzing how Islamic financing works in the US and how domestic economic development could use Islamic financing.
Panelists discussed the growing trend among state legislatures to try to ban the recognition or practice of Islamic financing and Shariah law, actions that threaten to derail the growth of Islamic financing opportunities in the US and block US access to billions in Shariah-compliant investments from Middle Eastern countries.
“This year’s forum demonstrated that Islamic finance is not antithetical to the American way of conducting life or business, but is instead an inventive approach to financing business transactions that will open up the US market to greater foreign investment,” said Ambassador Patrick Theros, USQBC president and executive director.
“Islamic financing, once properly understood and leveraged, will not only strengthen economic ties between the US and the Middle East, but will prove beneficial to US companies willing to explore alternative financial arrangements.”
Zamir Iqbal, a leading investment officer with the quantitative strategies, risk and analytics department in the treasury of the World Bank in Washington who has written extensively and co-authored several books on Islamic Finance, used the opportunity to say the “economic principle of Islam is to promote social justice.” The problem is that there are many Muslim countries that are engulfed in poverty, injustice and corruption, he said.
There should be more emphasis on risk sharing, not only financial but also at society level, Iqbal said. “Those who are less privileged of society should be able to participate in Islamic economic activities,” he said and cited Garmeen Bank as the famous example of successful micro financing which has helped micro financing to become a profitable adventure. Islamic finance promotes risk sharing and entrepreneurship, he said, adding that this created the instruments of re-distribution between the haves and have-nots. “Zakat, if collected and distributed properly, can help bring peoples out of poverty,” he concluded.
Ghiath Shabsigh, assistant director of the monetary and capital market department at the International Monetary Fund, who has previously managed the IMF’s financial sector work in the Middle East and Central Asia region, said the veil of mystery shrouding Islamic banking has lifted. “There is a better grip on clarity” in Islamic banking and because of the extra scrutiny, the risk management is actually better,” he said.
But still there are many hindrances many of which have resulted from inexperience, he added. In some countries with large Muslim populations they tend to put their money in non-interest bearing accounts. “The majority are unsophisticated borrowers, especially in low-income countries. Still the concept of micro-loan financing is catching on,” Shabsigh said. “It is a new concept and is picking up quickly, especially in Africa.”
Umar F. Moghul, a lawyer who works in banking and finance, private equity and real estate with his legal practice encompassing counseling financial institutions with respect to their obligations under the USA Patriot Act, warned of the young population in Egypt, Tunisia and the MENA region, where the “youth bulge” is drastic as is the cost of living. “This, along with high demand for education, infrastructure, health and wealth makes the transition from youth to adulthood all the more difficult. There, the GDP is not a sufficient indicator for wellbeing, and cannot mitigate these social stresses,” he said. “This is not unique to Egypt and Tunisia, but could also be true for the US. “Islam is perhaps the only world religion with a moral economy and a strong rule of law,” said Moghul. “This rule of law, Shariah, is seen as a source of justice. And a stable regime is critical to create stability.”
Along the lines of social justice, most of Islamic law’s implementation and enforcement is a matter of private consciousness, he said, but added that “honesty, fairness, transparency, justice, and wealth distribution — as a law, Shariah is concerned about everyone. Counterparts, employees, the poor, orphans – everything is included, including animals and plants.” He concluded by asking if the contemporary Muslim institutions are providing this.
Rafi-uddin Shikoh, CEO and managing director at DinarStandard, agreed with Moghul, saying the “underlying fundamental presence of Islam is its founding on economic social justice.” “What Grameen has done is something that financial institutions should have done a long time ago,” he said.
Islamic finance is all-in-all doing quite well, but added that the challenge is that the “the industry must not miss the tremendous opportunity to establish a leadership role in the global financial landscape or to even realize its full potential within its primary Muslim markets.” At issue is the fact that many who have taken leadership roles within Islamic finance institutions come from conventional banking systems, said Shikoh. “Leaders need to embrace the unconventional, spirituality drive purpose of Islamic institutions and let those be the key driving forces that produce financial results, while maximizing returns to a higher calling.”