Hajira Talbot
As the Western world faces the worrying prospect of job losses and recession following the global financial crisis this year, Middle Eastern countries look relatively untouched, with economists predicting that although the Middle Eastern economy’s growth may slow, it will outperform the rest of the world and is expected to retain a strong outlook despite falling crude oil prices.
Why is this, you may ask? Credit rating companies have said that countries such as the United Arab Emirates and Kuwait have high fiscal surpluses as well as large foreign reserves.
They also have Islamic banking, a financial system which looks set to achieve global endorsement and widespread acceptance in the wake of the global economic turmoil that shook the world in September this year.
Islamic finance revolves around ethical and socially responsible investment and a ban on giving or receiving interest. Critics of the system, however, have argued that the fundamental principle of charging interest cannot be avoided and that interest is merely “hidden and re-labelled” in Islamic banking. Despite this criticism and arguments over the finer points of what exactly Shari’ah-compliance entails, countries such as Malaysia and Switzerland have emerged alongside Middle Eastern countries as major hubs for Shari’ah-compliant finance.
In Britain, conventional banks teeter precariously on the verge of collapse as jobs are shed and workloads merged, but the country’s burgeoning Islamic finance sector is reporting revenue growth between 5 ½ and 14%. Not a single Shari’ah-based institution has failed since the financial crisis, and Islamic finance experts believe this is so because they fund from their own deposits rather than borrow from wholesale markets.
Even the United States looks set to learn valuable lessons from the Islamic financial model, with treasury deputy secretary Robert Kimmitt confirming last month that Shari’ah-compliant finance was firmly on the US’s agenda. The US Treasury department has since held a tutorial for policymakers called “Islamic Finance 101”
Islamic banking assets are estimated at around $500 billion, with economists predicting steady growth of up to 15%, paving the way for these assets to top $1 trillion by 2010. Muslim scholars and economists have been punting Islamic finance as a potential saviour for beleaguered and recession-hit economies, meaning markets the world over are now becoming more eager to swallow concerns about promoting “Islamic principles” and grab a piece of the pie.
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