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Saturday, 29 November 2008

Islamic finance can help in the blueprint for a new global economic order

MELBOURNE, Nov 28 - The world today faces extraordinary economic circumstances - a global financial crisis of a magnitude not seen since the Great Depression.
A new global finance blueprint must emerge from this crisis. The influences shaping this new blueprint will be different to those that shaped the post-World War II finance and capital-market era.
The new influences will include the emerging dominance of China, India, the Middle East, Asean and South America.
Developed economies and emerging nations are casting for new inspiration. In Melbourne, the global crisis intruded at a recent colloquium on Islamic finance.
The aim had been modest enough: to introduce to Australians the basic principles and concepts underpinning the Islamic financial system. And to raise awareness of business opportunities - in Australia and internationally.
In the event, the prospects for Islamic finance to help lift the Wall Street blues became clear; and in that endeavour, the role for services-oriented Australia.
The evident worth is in broadening the range of thought and inspiration for a refurbished global financial system.
Evident, too, are the opportunities for Australia in pragmatic engagement with emerging nations of the Islamic world, and access to sovereign wealth in the Middle East.
More profound - in bridging Islamic banking with conventional banking - is the prospect to reinforce the ongoing cross-cultural dialogue between Islamic and non-Islamic communities based on universal values.
At the root of the global financial crisis is what Prime Minister Kevin Rudd identifies as "extreme capitalism" driven by greed.
Gordon Brown, descended from generations of his father's family who worked the land, admires the ability of the free market to release the dynamism and enterprise of people.
Thus the Labour Government of the British Prime Minister is pro-business and pro-market, "and always will be".
But as he writes in a commentary in The Daily Telegraph, "I also know that we do not live by markets alone". Markets rely on values that they cannot generate themselves.
"Values as important as treating people fairly, acting responsibly, co-operating for the benefit of all ... are not born in markets, nor in states," he writes.
"These values ... are learned in families, neighbourhoods and communities, and developed in the relationships we enjoy as a society."
Brown's view accords with the Islamic Sharia principles that encompass religion, ethics and business practice.
Islamic finance is founded on religious practice of justice, fairness, trustworthiness and honesty, while seeking to ensure an equitable distribution of wealth. It prohibits the payment of interest, and rests on the principle of a sharing of profit and loss. It views interest-based transactions as unjust, because the risk is borne primarily by the borrower.
Islamic finance is based on the financing of tangible assets. Islamic institutions do not lend money at interest; rather they invest in the assets for which funds are sought.
Islamic finance today manages assets in excess of US$300 billion, and is growing at an annual rate of 15 to 20 per cent, with a presence spanning more than 300 Islamic financial institutions in 75 countries.
This growth in Islamic banking and investment management will be a piece of any new system that emerges out of the ashes of Wall Street.
For some time now, the global system has been experiencing a migration of personal and corporate wealth and economic strength from the nations of the West - with its people living on a rich cocktail of various forms of debt - to the nations of the East, a number of which are largely in surplus.
This migration should accelerate in the next few years as the world, and particularly the West, works to deal with the lingering issues of the financial bail-out and subsequent restructure, as well as the now widely
predicted slowdown in economic growth.
Many of the nations of the East are in the Islamic world, particularly in the Middle East and, of course, our neighbours, Malaysia and Indonesia.
Many, including all the Muslim nations, have large and growing populations providing strong prospects for a growing customer base.
There are more than 1.4 billion followers of Islam in the world today, constituting 20 per cent of the world's population. Islam is the fastest-growing religion in the world. There are now about 400,000 followers of Islam in Australia, and their average age is well below the national average.
The Islamic world is the source of most of the world's oil, and dependence on oil from Muslim nations is expected to grow.
In the wake of the credit crunch, the Islamic world cannot be ignored, not only as an emerging consumer market and source of investment capital, but as a source of alternative ideas incorporated into the councils of the world. - The Age

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