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Thursday, 6 September 2007

Islamic finance industry urged to avoid short-cuts

MANAMA: The head of the Bahrain-based organisation tasked with drawing up global standards for the nascent Islamic finance industry yesterday warned industry professionals that merely adapting conventional financial products so they become Sharia compliant is not sustainable. Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) secretary-general Dr Mohamed Alchaar told delegates on the first day of yesterday's conference on development financing that Islamic finance should avoid taking the short-cut of simply altering conventional products. "We have to differentiate between what we call Islamic products and what we called Islamised products - products that were made Islamic. These are conventional products made into Islamic products. This type of product I believe is not the right way to go," he said. "This taking of conventional products and fitting things around it and throwing them to the market and calling them Islamic is not sustainable," he added. He said Islamic finance was well-positioned to help developing countries because many of their economic goals "echoed" the Islamic principles of the advancement of social harmony. "Islamic finance processes and mechanisms are appropriate to be applied as structuring and development tools," he told delegates. He said that AAOIFI had been encouraged by a "tremendous response" to programmes it had organised to ensure the professional development of the industry by training key staff such as Sharia advisers. However, he warned that Islamic financial institutions must remember their obligations, even if creating a structure to rival conventional finance appeared daunting. "Our philosophy at AAOIFI is that this is a unique industry, that this is an industry driven by human beliefs and they should not be treated lightly and should not be treated in the same way as we do treat conventional banking or finance. The over-riding Islamic principles of Islamic finance need to be upheld," he explained. "Unfortunately after 1,500 years we don't have a complete economic theory of Islam. By issuing standards what we are doing by default is we are creating the basis for an economic theory of Islam," he said. "Just borrowing from outside and then forcing products to be Islamic is not the way to go. I know it is hard and I know it will not happen overnight but it has to be done," he added. - (GN, 6 Sep 07)
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