It is no secret that conventional financial systems are not working and the sector is looking for alternative and responsible ways of doing business.
Islamic finance poses an ethical and non-conventional model and is currently the only area with strong growth, said Professor Ignacio dela Torre, Academic Director of the Master in Finance Programmes at Spain's Instituto de Empressa (IE) Business School last week.
Dela Torre was speaking at the relaunch of the Saudi-Spanish Centre for Islamic Economics and Finance, a partnership between IE Business School and Saudi Arabia's King Abdul Aziz University.
The relaunch coincided with a conference on "Islamic Finance in the 21st century". He said when employment levels are high in the West, it makes sense for finance students to familiarise themselves with alternative finance models that also include eco-finance and micro-finance.
"From a macroeconomic point of view it makes sense that European governments and financial markets set up Islamic windows so excess liquidity can be channelled through some European financing markets with these structures."
"There is already $1 trillion (Dh3.67 trillion) of Islamic money and it is growing at 20 per cent with $200 million of additional Islamic money coming in every year," said Dela Torre.
Students are showing interest in this area of finance and universities in the United Kingdom and France have responded to the demand early on. Over the past five years, IE has been offering Islamic finance programmes.
"When you travel to the Gulf, where 50 per cent of banking is Islamised, there are not enough people with skills and understanding of Islamic finance," he said.
He added that from a career perspective it is wise to have knowledge of this area because those who work in conventional finance will sooner or later be faced with Islamic finance.
Amelia Naidoo in Gulf News. Here
Islamic finance refers to a financial system that is consistent with the principles of Sharia, the sacred law of Islam. It is different from regular banking in that it prohibits earning of interest (or riba) through the business of lending. It also prohibits direct or indirect association with businesses involving alcohol, pork products, firearms and tobacco. It also does not allow speculation, betting and gambling.
How does it work?
Islamic finance takes the form of Islamic banking and Islamic insurance, also known as Takaful.
Islamic banking is done in five ways:
1. Mudarabah, a profit-sharing agreement
2. Wadiah, a safe keeping arrangement
3. Musharakah, or a joint venture for a specific business
4. Murabahah, cost plus arrangement where goods are sold with a pre-determined margin of profit
5. Ijirah, a leasing arrangement
Takaful is a form of mutual insurance based on partnership and collective sharing of risk by a group of individuals.
How has Islamic banking progressed in recent years?
Islamic banking is most prevalent in Malaysia. It is spreading rapidly in West Asia, where the population is predominantly Muslim. New global financial centres such as Singapore, Hong Kong, Geneva, Zurich and London have made changes in regulations to accommodate the Islamic finance industry, which is nearly a trillon dollar in size now.
Indian regulations do not allow Islamic banking but the government is considering allowing it.
What restricts the growth of Islamic finance?
Most banks conducting Islamic operations have a panel of Muslim scholars called Sharia committee or Sharia board, which determines whether a product or practice complies with Islamic provisions. Also, the accounting is done differently for which there is an official standard-setting body known as the accounting and auditing organization for Islamic financial institutions. The strict code makes Islamic banking a very niche product.
From Economic Times. More Here.
