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Source: www.asiaecon.org |

THE POTENTIAL OF ISLAMIC BANKING IN ASIA


The fifth World Islamic Economic Forum (WIEF) is being held from March 2 to 3 in Jakarta, Indonesia, the largest Muslim country in the world. The 5th WIEF saw the attendance of over 1,600 participants from 36 countries. It is where leaders from the Islamic world gather to discuss ways to advance their community through dialogs among Muslim entrepreneurs and between Muslim and non-Muslim businessmen.


The fifth World Islamic Economic Forum (WIEF) is being held from March 2 to 3 in Jakarta, Indonesia, the largest Muslim country in the world. The 5th WIEF saw the attendance of over 1,600 participants from 36 countries. It is where leaders from the Islamic world gather to discuss ways to advance their community through dialogs among Muslim entrepreneurs and between Muslim and non-Muslim businessmen.

This year’s theme is entitled “Food and Energy Security & Stemming the Tide of the Global Financial Crisis”. According to the WIEF website, this year’s meeting will address issues “on basic necessities, energy, technology, the business of sustainable environment, global SMEs and banking”.

Many solutions have been proposed at the WIEF. They include calls by Datuk Seri Abdullah Ahmad Badawi, Malaysia’s Prime Minister, for Muslim countries, particularly the oil-exporting countries, to invest in the development of agriculture and food industry for mutual benefit. Indonesian President Susilo Bambang Yudhoyono also proposed the creation of a Muslim support fund to help countries in need, noting that Islamic nations account for almost half of the 50 least-developed and heavily indebted countries in the world. But one of the key ideas that was discussed to counteract the effects of the global financial crisis was the potential of Islamic banking.

Islamic/Sharia banking is a system of banking that is consistent with the principles of Islamic law (Sharia) and Islamic economics. Its basic principles include the sharing of profit and loss and the prohibition of usury, or charging interest on loans. Moreover, Islamic banking restricts financial deals to those acceptable by Islam, meaning deals involving activities such as alcohol, gambling and pork consumption are excluded. Islamic banking, a $1 trillion global industry, has seen a steady growth rate of 10 to 15 percent per year, with more than 300 institutions dispersed among 51 countries.

Renewed focus on Islamic banking stems from its reputation as being strict and risk-free, rendering it relatively unaffected by the current crisis. The prohibition of risky activities and the payment and collection of interest are seen as the main factors that shielded the system from the current financial crisis. Highly complex instruments such as derivatives are banned because they are seen as a form of gambling. Transactions are also required to be backed by real assets instead of repackaged, high-risk, subprime mortgages. Moreover, because banks and firms share profits, losses and risks, there is a natural incentive for institutions to ensure that the deal is safe and sound. Thus, Islamic banks did not invest in “toxic” assets or in leverage funds, helping them avoid the financial crisis that their Western counterparts are experiencing.

As the Western banking system continues to unravel, many see the huge potential of Islamic banking both in providing financial assistance to developing countries and in helping the global economy get back on track. Its potential is particularly significant in Asia, where 69 percent of the total Muslim population live and where the four biggest Muslim countries (Indonesia, Pakistan, India and Bangladesh) are located.

Indonesia hopes to be a center of Islamic banking in the future. “Islamic banking should take a front seat because it has not been affected by the crisis,” Yudhoyono said. “We hope in the future Indonesia will serve as a Sharia economic hub. We invited investors to develop this sector.”

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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