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Islamic Banks Also Responsible for Global Financial Crisis: Experts
Ahmed Abdul Aziz / 6 March 2009
ABU DHABI — Islamic banks must share equal responsibility with conventional commercial banks and financial institutions for the current global financial crisis, a professor specialising in Islamic economics said on Thursday.
Islamic banks did not provide true Islamic banking products. Instead, they gave an Islamic name to products of the commercial banks to attract clients who did not want to deal in interest, explained Professor Mahmoud El Gamal, the Chair of Islamic Economics, Finance and Management at Rice University in Houston, Texas, US.
El Gamal, who also is a professor of economics and statistics, spoke to Khaleej Times on the sidelines of a seminar on Africa-Arab Gulf relations at the Emirates Centre for Strategic Studies and Research. The seminar ended on Wednesday.
Dr El Gamal criticised the Islamic banks around the world stating that they have the same products that go through the same investment channels as those of the commercial banks, such as securitisation, Sukouk (bonds) and Murabaha (interest).
“In the past 30 years of Islamic banking, no ‘authority’ has been established that can inform the international concerned bodies such as the IMF about their financial and investment products. Hence, no one has a clear picture of the activities of the Islamic banks, the number of their institutions and branches”, said Dr El Gamal.
“We have heard that the total investments of the Islamic financial institutions are about $ 900 billion. However, we are not sure about the accuracy of this figure”, he added.
Dr El Gamal said that the effects of the financial crisis on Islamic banks could not be known because many governments, such as Turkey, support these banks. Meanwhile, he pointed out that the emirate of Abu Dhabi, as a model, has diversified its economic activities in the past years and not placed all eggs in one basket. “Hence, Abu Dhabi can avoid the consequences of the crisis easily”, he said.
Dr El Gamal added that Abu Dhabi has diversified its investments not only in the oil sector, but also in tourism, properties and financial services.
He expected that the global economy may take at least five years to oveercome the impact of recession. Deregulation of the present financial system and introduction of new regulations is essential for the global economy to pick up, he said.
The GCC countries will have to find new ways to invest their petro-dollars because their economies do not have the capacity to invest the huge returns from oil, Dr. El Gamal said.
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