Islamic finance to hit $2.5 trillion

By: Hasan Kamoonpuri

MUSCAT: Islamic banking and finance (IBF) is projected to exceed $2.5 trillion of assets in 2015 globally as the industry extends its reach into new international markets. The industry realised $2.1 trillion of assets in 2014.There are more than 1,500 organisations working for Islamic banking, finance, takaful, sukuk, Islamic funds and micro-finance in more than 90 countries, some 40 per cent of which are non-Muslim nations.

Only Iran and Sudan, boast 100 per cent Islamic banking landscape with not a single interest-based bank.

These and many other issues were discussed here on Wednesday in ‘Islamic Finance Knowledge Series’, launched by Bank Nizwa to continue raising the people’s awareness on Islamic banking across Oman.

The Series was launched by Dr Jamil El Jaroudi, CEO, Bank Nizwa together with Dr Anwar Soubra, the bank’s head of Shari’a Compliance. Dr El Jaroudi said IBF deals with the real economy in that there is a clear and unbreakable link between finance and tangible assets.

While providing an overview of the key differentiators between IBF and conventional banking, Anwar said a loan taken from a conventional bank can be used to finance any activity, while IBF deals with real economy and finances on healthy practices and products, Certain components of IBF such as risk-sharing, stability and innovation are proven stimulants of economic growth. Unlike conventional banks, which charge a flat rate of interest disregarding the reducing balance, IBF is fair and charges profit only on the remaining reduced balance.

Why IBF is a boon for the world? It prohibits making money on money, but it allows legitimate profit by allowing money to be used to trade tangible assets. The only means to benefit from the money is to convert its monetary function to economic function through either trading or investment.

IBF operate an interest-free system, in which depositors share the risk of investment and either partake of the resulting profits or bear part of the losses. IBF prohibits speculation and gharar (i.e. exposure to excessive, unnecessary risk or uncertainty in a business transaction) which result in stability and higher return over investment. IBF does not deal in debt trading, therefore, Islamic banks remained safe from the effects of the global financial crisis.

That explains why IBF is also popular among non-Muslims. They offer higher rate of return; lower risk exposure and better risk management compared to conventional banking. The equity-based IBF, as opposed to conventional system based on interest-bearing debt, appeals to most people because hat debt finance leads to greater instability than equity finance.

Interest and derivative transactions, such as forwards, futures and options, in short selling, and in speculation, which produce instability, are not part of the IBF, which is a real boon to the world.

Anwar said the 2008 financial crisis of the capitalist system, which is based on usury and securities rather than commodities in markets, shows that it is undergoing a crisis and that the integrated IBF, if properly applied, can replace capitalism.

By end of 2015, over 800 students are expected to have benefited from the sessions, developing an in-depth understanding of Islamic finance and the added value it offers.


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