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Islamic finance promotes use of money as 'capital'

By Our Correspondent / 16 March 2008

JEDDAH — Islamic finance, whose growth has been predicted to be between 20 per cent and 40 per cent per annum, has received support from the imam of the Grand Mosque in Makkah, Shaikh Saud Al Shuraim, who is also a member of the teaching staff at Umm Al Qura University.

In his Friday sermon, Al Shuraim said that many international financial organisations have started adopting Islamic financing systems after its success in terms of achieving substantial profits.

There are more than 400 Islamic financial institutions worldwide, and the global Islamic financial market is believed to be worth over $500 billion.

Al Shuraim said that the market should follow the teachings of the Shariah, keeping away from interest-based financial dealings. He added that the Holy Quran and the Sunnah have explained the basic principles for financial transactions. The system should move from being just 'Shariah compliant; to 'Shariah-based.

Ezzuddin Khoja, secretary-general of the Supreme Council of the Islamic Financial Banks, explained that the Islamic banking system does not depend on loans and offers a variety of products such as murabaha, mudaraba, musharaka, ijara and istisna based on profit and loss sharing.

He said that the Islamic banking system began in Saudi Arabia and Prince Muhammad Al-Faisal and Saleh Al Kamil have played a pioneering role in promoting it.

According to Adnan Al Musallam, chairman of The Investment Dar (TID), "Islamic bankers need to be aware that we serve not only our shareholders and the bottomline, but a host of other stakeholders. This is what separates Islamic banking from Riba (interest) banking. Muslims too should not be asked to pay a premium for their religiosity. As such, cost of transaction, pricing, competition and service quality are just as important in the Islamic banking ethos as Shariah compliance, corporate governance and management ethics."

Al Musallam said that a  new generation of Islamic bankers — highly educated, market savvy and full of  creative energy and confidence —  are determined to change the mindset of the Islamic finance industry from 'Shariah-complaint' to 'Shariah-based.'

He does not favour integration of Islamic finance into the global financial system but believes in the relevance of the concept of 'Tawhid' (an overall vision, understanding and distinctiveness) in the Islamic economy. He said that this is created through a free market and widespread ownership of productive capital, bringing economic efficiency and establishing a direct connection between money supply and the real economy.

According to him, Islamic finance brings discipline in the market by promoting the use of money as 'capital' and availing it to entrepreneurs to bring efficiency and true returns to the providers of capital. "Many of the new generation of Islamic bankers believe that such a shift towards 'Shariah-based' financing could contribute towards a revolutionary change in the global financial markets," he said addressing the World Islamic Banking Conference that was held in Bahrain in December.

It may be noted that the six-member Gulf Cooperation Council (GCC), commanding a combined economy of $715 billion, has already established a common market, which move has been termed as  "historic" that would ensure "economic equality" among citizens of the member states ˆ Saudi Arabia, Qatar, Bahrain, Oman, Kuwait and the United Arab Emirates.The move is also is expected to draw more foreign investments to the region.

The decision to launch the common market was taken by the group's leaders at their last summit, which was held in Doha in December. They also announced plans to achieve a currency union by 2010.

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