Western debt crisis spurs exodus to Islamic finance

Sharia-compliant firms seen mopping up the fallout from global economic woes

Islamic finance will almost double to $1.8 trillion in assets by 2016, Deutsche Bank said

Islamic finance will almost double to $1.8 trillion in assets by 2016, Deutsche Bank said

Chicago native Mariam Khan never considered Islamic banking until her husband moved the family to Dubai in 2007. But the 36-year-old housewife is a believer now as the Western debt crisis deepens. Her husband opened a family account with HSBC Amanah, the Islamic arm of international bank HSBC.

"When I look at the damage that an interest-based system has done to the US and Europe, I can see why God forbids riba (interest) in Islam," she said. "I'm not particularly conservative as a Muslim but I definitely feel safer within Islamic banking."

It is a sentiment that proponents of Islamic finance, which is based on religious principles including bans on interest and pure monetary speculation, hope will spur unprecedented growth of their industry as a safer, more stable alternative to conventional finance.

Bahrain's central bank governor Rasheed Mohammed al-Maraj said last week that Islamic finance had an opportunity to attract not only customers in its traditional areas, the Gulf and Muslim parts of Asia, but also investors around the world who had been hurt by the turmoil in mainstream capital markets.

"It should provide the industry with a sustained period of growth for the next decade," he said.

Ashar Nazim, Islamic financial services leader at consultants Ernst & Young, said the Occupy Wall Street movement in the United States showed mounting public anger about inequality in the capitalist system. This could help Islamic institutions gain market share by emphasizing Islam's preference for an equitable distribution of wealth and dislike of excessive financial leverage, he said.

It is still unclear, however, how much of the recent growth of Islamic finance is due to its merits - and how much is simply due to a temporary flight from conventional finance which could reverse when global markets eventually stabilize.

With its assets estimated to total nearly $1 trillion globally, Islamic finance remains tiny compared to conventional finance with its tens of trillions of dollars. The market in Islamic bonds, or sukuk, is believed to total about $50bn, roughly 1 percent of global bond issuance.

But proponents of Islamic finance can point to impressive gains. Nazim said it had expanded at a compound annual growth rate of 20 percent over the past three years, compared to 9 percent for conventional finance. That performance gap has probably widened further in the last two months as much new business in the West has ground to a halt.

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Posted by: keenObzerver

Islamic banking is in its infancy, most current providers are not 100% compliant, especially conventional banks that offer islamic banking services.
Islamic banking is not as simple as "no interest". There are a multiple of requirements and guidelines that need to be followed, eg:
1- Value based, not debt based model (you dont borrow "money" the bank buys and pays for a commodity, then sells you this commodity at a higher price over installments) although this sounds almost like interest, the difference is that an actual transaction took place, the bank paid for and took possession of a commodity, then resold it to a customer at a profit.
2- Fractional reserve banking, please look this up. Islamic banking should not do this. All existing islamic banks do this to some degree.
3 - Non speculative
4- Spot trading, not based on futures/options/long or short selling. Contd...

Posted by: Telcoguy

I have to agree. This was an infomercial essentially.

Posted by: Get real!

Some very naive comments being made here. As anyone who has taken an Islamic loan will tell you, they do pay a percentage over and above the actual loan amount when they pay it back. It may not be called interest but it is exactly the same principle. As for the proposed 'safety' of Islamic finance......remember the first debt instrument to default in Dubai in 2009 was...yes, that's right, an Islamic bond (sukuk) issued by Nakheel!

Posted by: Tarek

Totally agree, moreover, I have a very good friend who works in the private banking of one of the so called "Islamic Banks" and he told me that all deposits in the bank, including mine, have a predetermined interest rate (which is totally not Islamic) and that the affluent customers who deposit big amounts of money actually bargain with the bank to get higher rates!!!

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