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Wednesday, 30 September 2009

Islamic finance resilient, says Zeti - Robust legal framework in place to strengthen public confidence

KUALA LUMPUR: Islamic finance has continued to expand and demonstrate its resilience in the current more challenging international financial environment, says Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

“The level of innovation, scale and complexity of Islamic financial transactions is also increasing at a tremendous pace.

“Going forward, it is envisaged that the legal services in Islamic finance will become even more significant in the continued advancement and efficiency of Islamic finance,” she said yesterday at the Fourth Islamic Financial Services Board Seminar on Legal Issues in the Islamic Financial Services Industry.

Zeti said the relevance of a legal framework was essential in providing certainty and predictability to Islamic financing transactions and products.

“Indeed, a robust legal framework in Islamic finance instils public confidence in the Islamic financial system, provides an enabling platform for practitioners to develop more innovative and complex financial products to meet the increasingly multifaceted consumer demands.

“In addition, it provides the mechanism for dispute settlement that takes into account the distinct features of Islamic financial transactions,” she said, adding that this was where the legal services industry had a vital role in providing sound legal solutions in Islamic finance.

It provided a “bridge” between syariah and legal parameters, and also played a role as a risk mitigator.

To promote consistent application of Islamic financial contract in Malaysia, Zeti said Bank Negara had issued “syariah parameters” aimed at promulgating a standard point of reference on syariah for Islamic finance practitioners.

The syariah parameters outline the main syariah requirements in the contracts and provides examples, methods and models for practical application of such contracts.

“The first syariah parameter on Murabahah that was recently issued aimed to promote consistent interpretation and application of syariah views and opinions on Murabahah contracts,” said Zeti.

She added that Islamic financial transactions had their own unique risk characteristics that needed to be managed, including the legal risk of losses in the event of lawsuits and non-compliance with syariah principles.

In view of the importance for Islamic finance to be supported by a robust legislative framework, the new Central Bank fo Malaysia Act 2009 explicitly codified the duality of the Malaysian financial system which shall consist of the Islamic financial system and the conventional financial system, Zeti said.

Meanwhile, Islamic banking assets in Malaysia at the end of the second quarter of 2009 constituted close to 19% of total banking assets.

Total financing amounted to RM118bil and accounted for 20.1% of the total financing portfolio of the banking industry.

On the global front, Islamic financial assets are projected to grow to US$1.6 trillion by 2012.

(The Star)

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Sunday, 27 September 2009

Pakistan : BankIslami looking to acquire another bank

KARACHI: BankIslami is looking to buy another bank to expand its asset base even as it finalises the purchase of consumer finance portfolio of Citibank Pakistan, its CEO Hasan Bilgrami told The News on Saturday.

“We hope to come out with an announcement in the next three months. Various banks are under consideration,” he said in an interview, adding: “It could either be a commercial bank or Islamic.”

Any bank acquisition will come on the heels of a deal under which BankIslami is purchasing Rs3 billion auto and house financing portfolio of Citibank. The process of due diligence is already under way.

But getting the finance portfolio of a conventional bank could be tough for an Islamic bank, which does not recognise interest income.

Bilgrami said each and every transaction would have to be converted into Islamic mode of financing. “We will go back to the individuals and offer them a deal they will not resist.”

The options may include a rate break, he said, explaining that someone paying an interest of Rs15,000 could be offered Rs14,500. “This makes commercial sense and I don’t think anyone will have problem with this sort of arrangement.”

Citibank’s two consumer finance portfolios have some 9,000 customers and he said the cost of dealing with them will be factored in what BankIslami pays to bring them on its books. BankIslami should have been content with exceptional growth in its assets, number of depositors and an unprecedented expansion in outreach at 34 branches a year.

But Bilgrami says Citibank’s portfolio acquisition is a strategic fit as the customers could easily be approached. He said the bank will be giving away Rs25 to Rs30 million to charity in order to compensate for interest-based transactions, which will be realigned with Islamic mode of banking.

BankIslami has put hold to open up new branches which at total of 102 are spread across the country in 49 cities now. Till now the bank has not performed well financially. However, that is about to change. Bilgrami says the total carryover losses of Rs350 million will be eliminated by end of the year.

“These losses reflect our cost of expansion. But even the losses were not that much when compared with other banks. We were best of the worst.”

BankIslami saw substantial increase in a number of its depositors especially in last few months. Since December 2008, the depositors have increased by 2.5 times. Interestingly, this is when the bank is giving the lowest rates on deposits.

Bilgrami, the light-bearded CEO, mince no words in saying that his bank is offering return on 10-year deposits which any other bank is willing to give on a one-year term to customers. “It’s not just about the rate of return. It is about the look, service and quality. There are many other variables which attract the customers,” he said. “People believe us to be an Islamic bank.”

Indeed, Islamic banks are following the religious traditions. From the scarf-wearing receptionists to the secretary who wears a head-to-toe veil, the banks are an embodiment of the Islamic orthodoxy. There has been a lot of criticism on Islamic banks that are accused of using the religious nametags for following interest rate regime of commercial banks.

Bilgrami said there is nothing wrong in that. “There is no restriction on using Kibor (Karachi inter-bank offered rates) as benchmark by Islamic banks,” he said. About a proposed creation of an exclusive Islamic inter-bank market, he said work under way in this regard.

(The International News)

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Saturday, 26 September 2009

The steady rise of Islamic finance in the UK

London has become one of the biggest centres for Islamic finance in the world, with five Islamic banks, and many others in the high street offering Islamic financial products, or "windows" as they are known.

The growth of Islamic finance has been an unexpected outcome of the attacks on the World Trade Center of 11 September 2001.

Islamic finance is based on rules from Islam's holy texts - the Koran. Scholars claim the fundamental difference to conventional banking is that Islamic finance is more ethical.

First it bans any form of "riba" or interest, preventing consumers being exploited by high rates of borrowing.


Secondly, it regards speculative trading as sinful. One of the world's leading experts on Islamic finance, Sheikh Hussain Hassan, argues the whole crisis in Western banking could have been avoided if these basic sharia principles had been followed.

He said: "$600 trillion were wasted on options, futures and derivatives, all gambling. Sharia prohibited these kind of risks 14 centuries back."

“ We have a policy of no obstacles, no special favours, towards Islamic banking or indeed any new financial company ”
Financial Services Authority
Some Muslims regard ordinary mortgages as sinful. The idea is for the lender and the borrower to share the risk. There are now more products on the market which help Muslims buy a house without paying interest.

The most common form of Islamic home purchase loan works like this: When a couple wants to buy a house, instead of borrowing the money, the Islamic bank buys 80% of the house for them.

The couple puts down a deposit for the other 20% and then pays the bank rent, plus regular portions of the capital. During the fixed period, ownership gradually passes from the bank to the buyer.

But if the borrower loses his job and defaults on the payments, under sharia law it is very difficult for the family to be thrown out of their home, as that would be seen as a creditor exploiting a debtor.

These interest-avoiding transactions can work on a bigger scale as well.

The old Chelsea Barracks in London was bought by the Qatari government for nearly £1bn - the biggest residential property deal in the UK.

The entire transaction was done under sharia pinciples, with contracts drawn up by lawyers at Norton Rose.

Farmida Bi, one of the law firm's partners, explained that London has attracted this kind of investment because the British government wooed Islamic money in the wake of 9/11, at the expense of the US.

"It was really September 11th that made being a Muslim a political statement and not just a matter of personal faith," she said.

"And with the Patriot Act, which made investments in the US difficult for many Islamic investors, there was a significant increase in Islamic investors choosing to invest in Islamic institutions and Islamic products."

So while groups in the US were investigating terrorist connections with Islamic banks, Muslim investors pulled their money out of America.

Some of the money got diverted to London, which had traditionally been a banking centre. The British government then helped further by changing regulations to give sharia-compliant funds a level playing field with conventional ones.

A spokesperson for the Financial Services Authority, the body which regulates UK financial services, said: "We have a policy of no obstacles and no special favours towards Islamic banking, or indeed any new financial company."

The desire of British Muslim consumers to affirm their identity is also leading to a growth in new consumer services.

Salaam Insurance has launched Europe's first sharia-compliant car insurance aimed at Britain's 700,000 Muslim drivers.

Bradley Brandon-Cross, its non-Muslim chief executive, finds most Muslims do not yet understand the profit and loss sharing principles of "takaful" that it is based on.

"There's clearly an education campaign we are undertaking for British Muslims, to help them understand what Islamic finance is and what it means for them," he said.

Critics say the Islamic character of the products is merely window dressing to lure in Muslim customers.

And others argue the scholars who authorise them are a narrow group whom financial institutions choose to support their new services.

But this scepticism is unlikely to halt the inexorable growth of Islamic finance - as big investors and growing numbers of Muslim consumers demand it.

By Emily Buchanan and Bhasker Solanki
BBC News
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Monday, 21 September 2009

Germany's Halal Market Unleashes Opportunities For Malaysian Suppliers

FRANKFURT, Sept 19 (Bernama) -- With the growing Muslim population in Germany, there is also a growing demand for products that are halal certified.

This propensity also spells opportunities for Malaysian suppliers of halal products; indeed, the Malaysian halal food industry, which has done pioneering work in this food segment, stands a good chance of not only penetrating but also asserting itself in a niche market for which competition is not, yet, as intense as in other segments.

Nonetheless, Malaysian suppliers, with the possible support of Malaysia External Trade Development Corporation (Matrade) which has an office in Frankfurt, could crack open a market that can generate good business in the long run.

The added advantage is that the size of the market is likely to increase as more and more German consumers are exposed to halal products which were, at one time, confined to the Muslim population in the country.

Indeed, German and European suppliers are increasingly flooding the German market with halal products, as is evident, for example, with the proliferating stocks of halal products that are visible in the shelves of German supermarkets.

"Only a few years back, it was very rare, if at all, to see halal products in a German supermarket. There was some misconception about the term halal that was nebulously associated with religious fanaticism.

"However, that misconception is gradually being replaced by a healthy sense of appreciation as many supermarkets are trying to court Muslims with halal products," says Armin Bollig, a consumer behaviour researcher who lives near Frankfurt.

With over three million Muslims - and the trend shows further growth in demographics - German food manufacturers are discovering an attractive market by offering products that conform to the sentiments of Germany's fastest growing minority.

"This little section you see in the main shopping hall of this supermarket will convey to you the change that is taking place in the behaviour pattern of the German consumer who is today willing to accept food practices which were once frowned upon," maintains Bollig as he walks through a Frankfurt supermarket that also caters to Turks and other Muslims.

The three million Muslim consumers in Germany may still be a small market but it portends to grow fast as more and more of the local consumers also join this following of consumers.

German consumers are now relishing the doner rolls - the pita bread rolled around pieces of meat and vegetables and spiced with a hot red chilly sauce or white garlic sauce.

But many German and European suppliers are catering their halal products not only for the consumers in Germany and other neighbouring European countries but also for their export markets in the Muslim world.

Some of the halal-conform products being manufactured include chocolates, soups, biscuits and what have you.

The food company Nestle, for example, has created some 75 halal certified units within its global chain of companies. Indeed, the Swiss company earns more profits with its halal products than with its range of organic products which are, incidentally, enjoying popularity amongst Western consumers.

France's retail chain Casino even introduced last year an Internet site called Wassila exclusively dedicated to halal products.

Britain's Boots has launched a range of so-called halal baby foods in 30 of its retail stores.

After all, some of the German halal suppliers argued, Malaysia also has halal burgers served by McDonald's which has with this novel approach been able to increase its sales by 30 percent in a short span of time.

However, many German suppliers are faced with a tricky question as to how they should conform to the rituals under which halal food products are prepared.

For Muslims, for example, animals or birds would have to be slaughtered without the use of any anesthesia, a required that is strictly prohibited under German law.

But German suppliers have learnt to circumvent the problem by importing halal-conforming meat from their overseas suppliers.

There is also the added problem of certification of halal-conforming units.

There is no officially recognised body in Germany authorised to issue halal certificate.

The result is that there is an outgrowth of uncontrolled halal units which are certified by imams who can do so only in an unofficial capacity.

There have also been some cases of forged or falsely issued certificates in the past.

Nevertheless, the halal trade is here to stay.

The World Halal Forum reckons that the worldwide sales of halal products in the current year would touch some 634 billion euros, up from 580 billion euros in 2005.

The world's biggest food exhibition, ANUGA, which will run in Cologne from October 10 to 14, will also focus on halal products this year, with a third of the 6,000 exhibitors showcasing a large variety of halal foods. Malaysia is also being represented by a contingent of food-manufacturing companies, many of whom are supplying halal products.

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Sunday, 20 September 2009

Malaysia is the biggest issuer of sukuk in the first seven months of the year

Malaysia is the biggest issuer of sukuk in the first seven months of the year, comprising 45% of US$9.3bil worth of new issuances, according to a recent report by Standard & Poor’s Rating Direct (S&P).

Saudi Arabia contributed 22% of sukuk issued for the same period. The total issuance, nonetheless, reflects a 20% drop compared with US$11.1bil issued in the corresponding period in 2008 due partly to the challenging market conditions and drying up of liquidity, as well as less supportive economic environment in the Gulf Cooperation Council countries, especially the United Arab Emirates (UAE).

S&P expects growth in the UAE to be flat or slightly negative in 2009, down from more than 7% in 2008, mainly because of the country’s economic slowdown and the steep fall in oil prices. In the first seven months, the government of the Emirate of Ras Al Khaimah issued the only sukuk in the UAE, for US$400mil.

Asia, meanwhile, has taken the lead in driving the expansion of the sukuk market with over 60% of issuance coming from this region.

The first seven months of the year saw similar number of sukuk coming onstream versus a year ago, of about 70 issuances. Saudi Electric Co was the largest sukuk issuer of US$1.8bil.

US dollar-denominated sukuk rose to 20% of total issuance, an improvement from only 10% of issuance in 2008, indicating the progressive return of the greenback as one of the main currencies for sukuk issuance.

Sovereign-related sukuk still dominates the market, accounting for three quarters of new issuances in the first seven months.

“Sovereign issuance will continue to drive market growth for the remaining months of the year because investors are shying away from corporate issuance in these turbulent times,” S&P said.

Another major development this year is the default of several sukuks, including Kuwait-based The Investment Dar Co KSCC due to a general debt-restructuring programme, and Saudi Arabia-based Saad Group, which defaulted on some of its debts.

The foreign research house said these episodes reminded investors that default could happen in the sukuk market.

“The default of several sukuks was possibly partly responsible for the slowdown in issuance. On the upside, these defaults should provide the market with useful information on how sukuk will behave following default,” it added.

S&P still views the pipeline for sukuk issuance as healthy as the market continues to attract interest from an increasing number of issuers in both Muslim and non-Muslim countries.

It noted that several stakeholders were trying to reduce some of the hurdles that still impeded the market development of sukuk, like the Accounting and Auditing Organisation for Islamic Financial Institutions’ intention to screen products and services for syariah compliance and Malaysia giving legal status to the National Shariah Advisory Council of Bank Negara as the final arbiter.

“These steps could increase investors’ confidence in the syariah-compliant aspect of the products and services,” the foreign research house said, adding that the creation of the Saudi sukuk and bond market under the Tadawul (the Saudi stock exchange) was another positive development.

(The Star, MY)

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Islamic finance industry must broaden portfolios

Islamic finance is winning many fans but further evolution is necessary.

Islamic investment banking is being described as the darling of the new financial age. At least that has been the overriding theme of much of the industry talk and articles written since the onset of the global crisis. One Asian newspaper recently described Islamic finance as the emerging "blue ocean", which is a reference to the business strategy book written by W. Chan Kim and Renée Mauborgne of INSEAD, an international business school. The two business gurus promote creating new market space or "blue ocean" rather than competing in an existing industry.

Islamic finance certainly fits this description. However, much of what has been written fails to acknowledge that the sector has been hurt by the global financial crisis too - and it would be unrealistic to think otherwise. And moreover, it may turn out that Islamic investment banking will find itself reproducing some of the characteristics which make conventional finance so successful.

Of course, that is not to say that a prudent, asset-backed banking model such as the one on which the Islamic finance model works does not have good reason to look to the future with optimism. Unquestionably it does.

The industry is currently worth $700 billion (Dh2.6 trillion), according to rating agency Moody's, but has the potential to amount an impressive $4 trillion. Although precise figures are not available, the rate of the industry's expansion is estimated at somewhere between 10 per cent and 20 per cent annually.

Another reason for optimism is the fact that many recession-weary finance experts in the West are coming round to an acceptance of merits of Islamic banking.

The ethical principles which form the cornerstone of the industry are seen as a more sustainable alternative to conventional investment banking, which has found itself accused of unhinging the global economy.

So it is almost inevitable that the current furore in international banking has resulted in the surge of interest in Islamic finance we're now seeing.

The Sharia-compliant sector is emerging from the global financial crisis in a relatively healthier position than its conventional counterparts.

Any Islamic bankers who migrated from conventional institutions must think themselves most fortuitous when they look at the position their old colleagues now face.

Their favourable situation, however, did not come down to luck. Rather, Islamic banking made its way through the worst of the financial conflagration primarily on the back of its more prudent risk management principles.

That is not to say that the sector did not suffer at all - according to Standard & Poor's, sukuk issuance globally fell 56 per cent year-on-year to $14.9 billion last year, largely mirroring the same curve as their conventional version, the bond.

It remains to be seen quite how fully regional states and corporates will use debt issuance in the post-crisis era, though there is a feeling amongst insiders that the private sector will be more inclined toward it if central banks take a lead.

Islamic funds are struggling, too. The average return for Islamic equity funds for 2008 was the equivalent of -39 per cent, while the average returns for the first quarter of 2009 stood at the equivalent of -3.7 per cent, according to Ernst & Young.

Meanwhile, Islamic private equity is also hobbled by the slump and the broader issue of exit strategy, which has long dogged this particular sector.

While these nasty side effects of the global slump will pass in time, two challenges remain to be tackled, especially in the Gulf, if the industry is to reach what many see as its significant potential.

Firstly, Islamic finance currently lacks diversity in its investment banking portfolio. Put simply, the product and service offering is not deep enough. If the industry wants to evolve from being a niche player - albeit operating profitably in its "own space" - Islamic innovators would do well to look for more equivalents to conventional vehicles. Just like traditional investment banking, a diverse range of asset classes offering multifaceted products will be necessary.

Secondly, and this is interrelated to the need for more products, the sector, just like the whole region, has become over dependent on real estate. But given the real estate asset deflation witnessed across the Gulf over the last year, that strategy, at least for now, has lived out its last days.

A more balanced spread of asset classes will help the industry to reduce its vulnerability in any one sector. This, in turn, will give it the depth needed to win over more customers, and at a time when many are looking for alternatives to the conventional system this can only be a good thing.

(By Trevor McFarlane, Special to Gulf News)

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Thursday, 17 September 2009

Lorne Cutler: There's nothing inherently wrong with Shariah finance

Islamic or shariah-compliant financing is becoming increasing popular, both in Muslim countries and Western countries with large Muslim populations. It was therefore quite a surprise to read Dr. Sebastian Gorka's assertion (Shariah finance: A zero-sum game, Aug. 28) that the primary reason for Islamic financing is to funnel funds into political and military Jihad to destroy the West. This is based on Dr. Gorka's view that Islam doesn't actually prohibit interest, only usury, and as such Islamic banks have really been established to fund jihad with the prohibition of interest really being a ruse.

This is equivalent to saying that the real reason for conventional interest-based banking is to launder money for organized crime. Leading Western banks such Citibank, HSBC, Deutschebank and ABN-Amro have opened up Islamic subsidiaries. It is hard to believe that they would knowingly funnel money to terrorist groups.

At one time, Christianity and Judaism also considered interest as usury and prohibited it. This was at a time when lending was considered taking advantage of the poor. The poor would borrow money to pay off debts of servitude. Any interest added to the burden of the poor was considered usurious. Gradually, however, capital was required in the creation of real wealth. Charging interest was no longer taking advantage of the poor but a critical tool in creating wealth and raising standards of living. While Christianity and Judaism changed their views regarding interest, Muslim scholars did not.

Given the aversion in Canada to shariah family law, it is critical we understand the principles of shariah financing and why conventional banking is problematic for religious Muslims.

Islamic financing is based on three principles. First, interest is prohibited. Islam believes that you can't make a profit on something that is not physical, and since money is only a concept, charging interest is not allowed whether at usurious rates or not. A bank can earn money, however, by becoming part of the underlying commercial transaction.

Islamic banks provide funds in one of three ways. If Party A wishes to buy goods from Party B,

but needs financing, the bank would buy the goods from Party B and either resell the goods to Party A or lease the goods to Party A. The bank charges a markup to cover its profit and risk. The third structure involves the bank going into partnership with Party A. The bank provides the funding and Party A provides its expertise. Similar to conventional equity financing, the bank is repaid from the profits generated by the venture.

The second key principle of Islamic banking deals with the types of goods that can't be financed. Alcohol, pornography, gambling and agriculture/ food processing industries based on pork are prohibited.

Thirdly, an Islamic bank is not allowed to engage in speculative practices such as derivatives.

While Muslims are required to donate a certain amount to charity or zakat, this is no different than Jewish tzedakah (charity) to the poor or Christian tithing. Muslim companies and banks should also give to charity. We call this corporate social responsibility.

Each Islamic bank has a panel of three Islamic scholars who opine on whether something is shariah-compliant. These panels can only determine what constitutes shariah-compliant financing, not whether the structure complies with the laws of the country, and they have no authority to act against the country's law.

There are international agreements prohibiting banks from money laundering and funding terrorist groups. If required, existing international agreements can be modified to ensure Islamic banks are governed by these agreements if they aren't already. If certain banks don't abide by these rules, Western banks will be prohibited from working with them. Canada's criminal code also makes it an offense to support terrorist groups. If a religious scholar advising a particular Islamic bank also preaches jihad, regulations could be established to prevent our banks from dealing with that bank. Islamic banks would be subject to the same regulations and supervision as are conventional banks.

Interest is a merely a tool, not a fundamental Canadian or Western value. If certain groups have problems charging interest, there is nothing inherently wrong in setting up financial institutions that can provide funding in a way that does not abrogate religious principles. Our existing and future banking laws and regulations can protect us against the risk of a bank engaging in illegal activities.

National Post
Lorne Cutler is an Ottawa-based independent financial consultant.

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Paris Seeks to Become Capital of Islamic Finance

French politics might live uneasily with Islam--battling over burkas, sparring over veils--but French economists are keen to make Islamic finance a crisis buster in Paris. Finance minister Christine Lagarde is trying to attract Islamic banking, which has grown 10 to 15 percent a year since 2003 to become a global industry totaling more than $700 billion today. That's a smart move: the global economic meltdown has made Sharia-compatible finance especially attractive. Islamic banking eschews much of the risky behavior that brought conventional finance to its knees, including speculation; it also prohibits interest, helping to prevent debt spirals. And since it favors long-term investment in real estate and infrastructure, it could provide much-needed cash for France's economy. A 2008 report for lobbying group Paris Europlace argued France could become a global leader in the field, drawing $145 billion in capital by 2020 and challenging London's current dominance in the West. To create a market in France, Lagarde is working to smooth out the remaining tax and legal obstacles to full Sharia-friendliness. Insiders think her friendly signals to Muslim investors abroad will outweigh her colleagues' burka bouts.

(Tracy McNicoll/Newsweek)
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Monday, 14 September 2009

Further strengthening of Islamic banking called for

JEDDAH - Saleh Kamel, chairman of the Al Baraka Banking Group, has inaugurated the two-day 30th symposium on Islamic Economy on Wednesday at the Jeddah Hilton.
He urged in his speech all Islamic banks to strengthen their Islamic banking services.
“The Islamic banking is a real message and method in the economy,” he said, addig “I hope we don’t change the terms without applying the Islamic principles.”
He also said that Islamic banking should be purified from all the impurities it suffered from during the past years.
Saleh has earlier talked to Al-Sharq Al-Awsat Arabic newspaper about the impurities and said “Islamic banking has had lot of differences in the Fatwas that conflicted with each other.”
He said in the interview that there had been a lot of differences in views regarding some products such as Tawarruq and Murabaha.
Adnan Ahmed Yousif, president & chief executive of ABG, revealed a new identity of Al Baraka Banking Group.
A number of high caliber scholars and Islamic finance experts presented their research papers that discussed the financial derivatives and their role in the global financial crisis, the practical applications of the Ijarah described on liability, security and debt insurance and the extent to which non-Shariah laws may be accepted as governing laws in respect of agreements and contracts to which an Islamic financial institution is a party. - SG

(By Jassim Alghamdi/Saudi Gazette)

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Sunday, 13 September 2009

Post-Ramadan Islamic Finance Events in Kuala Lumpur, Malaysia

20-21 October 2009: Workshop on Islamic Structured Products: Sukuk and others
27-28 October 2009: Seminar on Product Development & Marketing for Islamic Financial Services
10-11 November 2009: Workshop on Risk Management for Islamic Banks
8-9 December 2009: Seminar on Islamic Wealth Management and Financial Planning

Please visit the organiser's web site for more information.

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Nigerian bank to introduce Islamic banking system

Abuja: A Nigerian bank will introduce Islamic banking system that abhors payment of interest on borrowed money and also prohibits the loans to be invested in any trade forbidden by the Sharia laws.

The CEO of FinBank Nigeria Plc Suzzane Iroche has said Islamic banking will be introduced in next three months in the northern state of Sokoto.

The initiative to launch this "new religious financial system" is for those customers who wanted "Islamic banking services for a long time”, Iroche said.

Islamic banks forbid loans to be invested in alcohols or any trade forbidden by Islamic (Sharia) laws, she said.

The decision to flag off this initiative from Sokoto was due to the fact that this city played a pivotal role in promoting Islamic virtues and its historical antecedent.

Sokoto is the seat of Islamic Caliphate in Nigeria and considered as the city where Islam was first introduced in the country.

The plan to introduce Islamic banking comes after CEOs of five banks top Nigerian banks were sacked about a month ago by Central Bank of Nigeria (CBN) governor, Lamido Sanusi for allegedly aiding and abetting money-laundering which ran into billions of Naira.

The country will open its financial space to Islamic and foreign banks, Sanusi said after the incident.

(Bureau Report)

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Saturday, 12 September 2009

Islamic Bank to come up soon in Kerala, India

Kochi: Gulfar Muhammedali, renowned NRI businessman, has been chosen as the Chairman of the Islamic Bank set to be begun in Kerala shortly.CK Menon and MA Yusufali are selected as vice-chairmen. The plan is to begin an interest-free financial institution in the model of Islamic banks.

PNC Menon (Shobha Group), PV Abdul Vahab, MP, Muhammed Siddique, PA Ibrahim Haji, T Balakrishnan (principal secretary of the Industries Department) and VKC Mammadu Koya (member of Kerala State Industrial Development Corporation director board) are other promoters. There will be two more promoters, making their total number 12.

Two names have been submitted before the registrar for approval as the name of the company. They are Al Baraka Financial Company and Al Madeena Financial Company. The company will be registered as a Non-Banking Finance Company, and will be transformed into a full-fledged Islamic Bank in future. The Reserve Bank has not yet allowed the opening of Islamic Banks that function as per Shariat rules in the country. At the same time, the central government is also reportedly planning to amend laws to allow Islamic banking in the country.

The company will function in partnership with the Kerala State Industrial Development Corporation and with the cooperation of the Industries Department. Rs 1000 crore is supposed to be the capital required. The KSIDC will buy 11% shares.

Big companies from the Gulf and European countries have reportedly informed their interest to take shares in the company. Doha Bank has come forward to buy shares. Reliance Group had approached the promoters and informed its willingness to buy 74% shares but the promoters reportedly declined it.

The company will distribute the profit made out of investments to the share-holders as per the Shariat rules. The company will give loans for development projects in the state undertaken by the government and private sectors. Loans will not be allowed to anti-Islamic projects like production of liquor. The bank will not pay or receive interest. A Sharia board will be constituted to decide what sort of investments to be made.

The state Finance Minister TM Thomas Isaac had informed the Assembly on Wednesday that the government would set up an Islamic Bank in the state. A high-level meeting regarding the setting up of the bank will be reportedly held in Kozhikode tomorrow. The bank is supposed to come up in Kochi. Registration formalities will be completed this year and the bank will be operational by mid 2010.


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France courts Islamic finance, as long as it’s not too obvious

In researching an article on what lay behind government plans to develop France as a European hub for Islamic finance, I was struck by the uneasy atmosphere surrounding the subject. On the one hand, the government sees it as a way to attract Middle Eastern money and wants to push the idea. But on the other, there is a clear sense of apprehension over how Islamic finance would fit into French society, where the policy of laïcité – the strict separation of church and state — tries to keep anything religious out of the public sphere as much as possible.

The bankers, lawyers, government officials and Islamic finance specialists trying to get Islamic finance off the ground in France speak publicly about the bright prospects they see for the market. France has the biggest Muslim population in Europe at over five million. The government is pushing the idea hard. There is a huge need for financing of future projects.

But privately, many admit that French companies and banks may hesitate to do anything that uses the label Islamic as this could highlight sensitivities over social and cultural divides. Ever since the French Revolution, France has upheld the idea that its people are all individual and equal citizens and not members of regional, ethnic or religious minorities. Stressing membership in a sub-group is considered divisive. The French frequently point to the multicultural approach taken in Britain and the United States as the source of political and social problems — such as ethnic or religious “ghettoisation” and “identity politics” — that they want to avoid.

Given this outlook, some French fear the Muslim community here is seeking to nurture its own identity in a way that sets them apart from ordinary French citizens and undermines the unity of the nation. The way in which Muslims openly speak about religion, rather than keeping their faith to themselves, looks to these French as a challenge to the principle of laïcité.

Not every charge of laïcité violation is necessarily valid. As one analyst put it: “You can see in so many papers that Islamic finance is a threat to laïcité , which is a complete nonsense. It proves that the people who write about this know nothing about Islamic finance. It has nothing to do with religion. It is making financial transactions according to a set of rules … these rules are ethical because they are Islamic.”

One expert admitted that the label Islamic would “not help” when French companies were deciding whether to raise cash by issuing Islamic bonds or conventional ones. Another said it would be “absolutely crazy” to call an institution conducting such business an Islamic bank. The Idea that a bank branch would have a giant sign reading “Banque Islamique de Paris” or something similar is so outlandish as to not even come up in conversation.

“The crux of the problem is that nobody wants it except for the Muslims and the Muslims have no power in France. They are not organised enough and have no lobbying power to see Islamic retail banking see the light of day,” said one industry specialist on condition of anonymity.

For Islamic finance to really take off, France will need to embrace not only the less visible wholesale banking side but the highly visible retail services too. The cash-heavy Middle Eastern partners whose money France aims to attract may well want to see neighbourhood bank branches offering Islamic mortgages in their shop windows and advertising them in the local media. Some might want their own branches, with their names emblazoned over the bank entrance, maybe in Arabic as well as in French. They will probably think that French banks offering Islamic finance should be as open about it as those in Britain.

Will they understand that one way not to convince the French is to urge them to do things the British way?

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Friday, 11 September 2009

Usury laws and global economic development

Within consumption based economic models access to credit and lending is crucial to maintain steady economic growth. However the sentiment towards lending varies worldwide. In the Middle East there is little access to credit or lending due to Islamic usury laws.

Usury originally meant the charging of interest on loans. This included charging fees for the use of money. After countries legislated to limit the rate of interest on loans, usury came to mean the interest above the lawful rate. In common usage today, the word means the charging of unreasonable or relatively high interest rates.

The term is derived from Abrahamic religious principles within Christianity. Whereas most early religious systems in the ancient Near East did not forbid usury on inanimate matter, like plants, food, animals and people, usury was forbidden on money lending. The main moral argument was that usury creates excessive profit and gain without "labor" which is deemed "work" in the Biblical context. To make profit on loans was considered mere avarice, greed, trickery and manipulation. It was felt that usury created a divide between people due to obsession with monetary gain.

Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest. Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the thy God may bless thee in all that thou puttest thy hand unto, in the land whither thou goest in to possess it. (Deuteronomy, 23:20-21)

The First Council of Nicaea forbade clergy from engaging in usury, which meant they could not charge interest of any kind. Keep in mind that the church was the wealthiest institution at the time. Lateran III decreed that persons who accepted interest on loans could receive neither sacraments nor Christian burial. Pope Clement V made the right to usury heresy in 1311 and abolished all secular legislation allowing it.

The Jews took a different view on the matter. Within Jewish tradition interpretations of usury vary, but one understanding is that Israelites were forbidden to charge interest on loans made to other Israelites. They were allowed to charge interest on transactions with non-Israelites. As the Jews were ostracized from most professions by local rulers, the church and the guilds, they were forced into marginalized occupations considered socially inferior: tax/rent collection and money lending. As a result they were viewed as greedy.

Often they were merely the ‘front’ man for the local lords. Peasants were forced to pay their taxes to Jews, which increased the animosity towards Jews, although it was the lords who were pocketing the funds. Tensions between creditors and debtors added to the social, political, religious and economic anti-semitism.

Attitudes towards usury did not prevent investment. What usury laws stipulated was that for the investor to share in the profit he must share the risk. To invest the money and expect it to be returned regardless of the success of the venture was to make money simply by having money and not by taking any risk or by doing any work or by any effort or sacrifice at all.

In a historical context, usury has been inextricably linked to economic abuse, typically of the poor. Within Muslim tradition ‘Riba’ is the corresponding term. Interest of any kind is forbidden in Islam. Specialized codes of banking have developed to cater to investors wishing to obey Qur’anic law.

And for practicing usury, which was forbidden, and for consuming the people's money illicitly. We have prepared for the disbelievers among them painful retribution. (Al-Nisa 4:161)

Islamic banking has the same purpose as conventional banking except that it operates in accordance with Shariah law. The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba. In 1975, the Islamic Development Bank was setup with the mission to provide funding to projects in member countries. Initially the products offered were basic and founded on conventional banking products, but the industry has developed new products and services in recent years.

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the property, a bank might buy the item from the seller and resell it to the buyer at a profit, while allowing the buyer to pay in installments. The fact that it is profit cannot be made explicit. Therefore there are no penalties for late payment. Instead banks ask for significant collateral to protect against default. Another innovative approach allows for a floating rate in the form of rental. The bank and borrower form a partnership, which rents the property to the borrower. The bank and the borrower share the proceeds from this rent based on the equity share of the partnership. Simultaneously the borrower buys the bank’s share on the property at agreed installments until full equity is transferred to the borrower. Furthermore Islamic banking is restricted to accepted deals, which excludes all business gambits involving alcohol, gambling, pork, etc.

Given the disparity in economic development in the West versus economic development in countries with ongoing anti-usury laws, usury seems necessary to insure that funds are made available to a larger cross-section of society. There is a direct correlation between usury and increased investment potential. With Islamic banking institutions invested in the risk, financial institutions are unlikely to extend capital to poor individuals with little collateral. Within that model, there would be no opportunity for investment capital to the impoverished entrepreneur, which leads to slower economic development, less innovation and a weak middle class. Cultural attitudes towards usury laws lend insight into the economic disparity between East and West.

(by Leslie Davis / Atlanta Mortgage Examiner)

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Thursday, 10 September 2009

Supervising Islamic Finance

Riyadh, Asharq Al-Awsat-Since its emergence, Islamic banking has never been subjected to any kind of independent supervision with the exception of supervising itself and that of [Islamic] Shariaa bodies that observe its activities and the tools and products of Islamic banking and its institutions.

The supervisory bodies that oversee financial corporations, such as central banks, market authorities and the bodies supervising insurance have paid no attention to this, either because they want to avoid double standards or because they are unaware of the importance of a supervisory body and of the need for standards to govern such an industry and its institutions. Those who passed laws with regards to this industry did not activate them, and they were more like ineffective instructions rather than laws.

This is because those in charge of supervisory bodies were unaware of the substantial and perhaps radical differences between the Islamic banking industry and conventional banking. Most of these people were conventional bankers who had no previous experience in the field of Islamic banking. Moreover, they had no incentive to learn, as they were in strong positions in the sense that they were the ones to enact, and at the same time, supervise the laws. They alone can solve or further complicate matters.

In addition, Islamic banking was not as wide spread as it is today and people were not forced to deal with it. However, as the influence of this industry has increased recently and has expanded so much that it has become a dominating feature of some financial institutions and their products in some countries, it will force the officials in charge of supervisory bodies to review their positions and to strive towards learning about the secrets of this industry and towards studying it carefully so that they can supervise it more effectively.

As some Asian and Western cities, London in particular, seek to attract the finances of Islamic banking and its institutions in order to become the financial capital of this industry, the Islamic banking industry took on an international dimension after having been immersed in localism.

After the emergence and intensification of the global financial crisis and after the Western world in particular realised that the Islamic banking system and its institutions could help the world out of the crisis, several systematic and advanced markets opened up to this industry. Such markets do not allow any kind of activity unless proper laws are enacted and proper mechanisms of supervision are ensured so as to guarantee risk control and good management. These countries have sought to pass laws that are suitable to the characteristics of such an industry and to create an effective supervisory system to monitor it.

With the risks of this industry being brought to light, such as the risks entailed in the settlement of Sukuk and the fact that several financing operations of some struggling companies are Islamic finances, this still gives rise to disputes between banks, these companies, Sukuk bearers and issuers. Due to the lack of clear rules and specialized courts necessary for this industry, there is no doubt that such disputes would be prolonged, which would affect the interests of the parties involved, especially banks and Sukuk bearers who would be highly affected by any delay in judgment and in obtaining their rights in such cases.

All these combined elements are now putting pressure on the founding Islamic countries to deal with the Islamic banking industry in a different manner so that this industry is acknowledged, proper laws are enacted, effective supervisory bodies are formed for risk control, accounting policies are legislated to ensure proper transparency and so that a fair judicial system is set up to preserve and give people their rights in the quickest and easiest way possible. This will make Islamic banking and its institutions a significant source of development for these countries and also a factor of financial strength after having been marginalized for a long time by the supervisory bodies in these countries, causing the finances in these countries to head towards other advanced markets that can guarantee a sound legal environment. As a result, these countries were deprived of that industry’s finances that would have contributed to the development of these countries by making the appropriate finance available for the infrastructure of these countries and contributing to financing the private sector and creating suitable job opportunities for their people.

Providing the appropriate supervision of any industry is enough to protect it and ensure its development and the Islamic banking industry is in dire need of supervision to protect it against itself and to ensure its development.

(By Lahem al Nasser)

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Wednesday, 9 September 2009

Australia: Religious co-operative an ethical alternative

IT'S known as the Muslim Community Co-operative (Australia). You may not have heard of the co-operative or what it does but in the coming years you will, possibly banking with it or even investing with it as an ethical investor.

The co-op has big aspirations in Australia, including potentially becoming the nation's first Islamic bank.

MCCA, established in 1989, is owned by its 7500 members. Its main business has been as a sharia-compliant investment and finance house. Under sharia rules, all investments must be compliant with the principals of Islamic law and, as such, investment in companies involved in areas such as alcohol, gambling and pornography is prohibited. Investments must also be in physical assets.

The co-operative has about $22million under management in 100 per cent sharia-compliant investments.

Last month, MCCA added another piece to its stable, launching Australia's first retail sharia-compliant mortgage income fund.

MCCA chief executive Chaaban Omran describes it as essentially a mortgage fund. "The fund should provide a steady stream of income where the return would be close to about 3 per cent to 4 per cent," Omran says. "However, the significance of this return is that it is 100 per cent halal; that is, it is sourced from sharia-compliant assets."

During the next three years, management aims to encourage all of its members to move its assets across to the fund.

At the same time, MCCA is keen to attract ethical investors. An ethical investor is someone who stays away from investments that defy their own moral code of conduct, such as not investing in tobacco or gambling.

For ethical investors who don't want to invest in tobacco or weapons, "this will appeal to them", Omran says. "Sharia compliance, like ethical investments, is linked to a moral code of conduct in doing business."

Funds that are invested would be used to provide sharia-compliant finance in Australia, MCCA says.

Omran says opening the fund was the first step towards getting a banking licence. In three years, he says, its investors will be asked to consider demutualising the co-operative, with the ultimate aim of establishing MCCA as an Islamic bank.

Omran says the potential for Islamic banking in Australia is enormous. For one, he says, "MCCA sees conventional banking and wealth management institutions offering Islamic windows. This means that a customer can walk into any branch and, depending on their risk profile and requirements, decide between conventional and sharia-compliant products, potentially have two tellers or two sets of shelves stocked with product disclosure statements. The global market in this window is worth $US1 trillion and is growing at a rate of about 15 per cent to 20 per cent, so if Australia can get, say, a 5 per cent slice in the next few years, then this would be a good starting point."

He is equally up-beat about the potential for Islamic superannuation in Australia.

"If set up correctly from scratch, rather than rebadging existing funds, it could be worth up to $1.3 billion from Australian Muslims alone," Omran says. "Naturally the market is expected to be larger once offered to all Australians, as in the model of ethical investments."

What is MCCA's investment philosophy?

It is to provide sharia-compliant products where there is a pure focus on asset-based transactions, mainly in quality residential property. MCCA will target individuals who are seeking an alternative investment to keeping their money in the banks, where the interest is considered prohibited by sharia law. Further, the fund will provide finance towards residential properties to customers who have a good stable employment record, who have a minimum of 20 per cent deposit and want to be a part of a model that is the next level above ethical investing. The fund takes takes the view that in the long-term property will produce a steady return free from fluctuations generally exhibited by the global debt and stock markets.

What are the fees?

There are exit fees in case investors decide to withdraw in less than six months. If there are more than two redemptions a year, the fee is $50.

What investment advantages do sharia-compliant products offer non-Muslims?

Sharia-compliant products always ensure that there is an underlying asset involved in the transaction, hence moving away from the traditional cash-based model. These underlying asset transactions could be where a property is purchased in partnership rent-to-own or murabahah (cost plus profit sale) style product structures.

What is the potential of the sharia-compliant investment products in Australia?

If we were to use British Islamic banking as a case in point, that market is considered to be worth pound stg. 500m in five years; funds are being channelled to Britain from all over the world, namely through the GCC (Gulf Co-operation Council).

The GCC is a trade and economic union made up of six Arab states of the Persian Gulf, which includes the United Arab Emirates and Bahrain.

Here in Australia we know of an overseas investor who would be happy to fund the next office tower of, say, $1bn, providing the deal is done in a sharia-compliant manner.

Infrastructure products are likely to take off in a big way first followed by small retail finance products, thereby leading to a fully fledged Islamic bank in Australia.

Hopefully it would be MCCA's Islamic Bank or perhaps it will be MCCA in conjunction with a local major bank.

How did Islamic banks perform during the global financial crisis?

Islamic banking and finance fared very well during the GFC. They were left almost unscathed because they are not attached to the debt markets. They continued to profit from their asset-based transactions.

They enjoyed higher asset, deposit, equity and profit growth than conventional banks. This has provided a catalyst for economic stability in the respective economies.

What do you see as the main themes that will dominate markets in the next 12 months?

Main themes around the markets are to establish economic stability. We are debating whether the stimulus packages so far have had the desired result.

The reality is that this is too soon to make the call and stopping now could be premature.

It is unfortunate that to resolve the global debt issue that governments around the world have had to resort to more debt. Clearly this is not a sustainable long-term solution and we will all be paying the price for this in the near future by higher interest rates, volatile fluctuations in inflation and higher unemployment.

House prices will drop once interest rates start rising. It will be a constant cycle, and Islamic banking and finance may just be what Australia needs to curb this turbulent horizon.

How do you screen your stock selections?

We run a managed discretionary account invested in stocks.

We have a sharia advisory board that constantly reviews the criteria and provides feedback and rulings about companies that may have businesses that engage in permissible and impermissible trade.

With MCCA being a co-operative, is it able to offer better deals to investors?

The co-operative and the income fund will deliver similar products; however, each entity is regulated by a different governing authority. But the fund has the edge over the co-operative.

Whereas in the co-operative the board of directors can make a decision on the final dividends to be paid to shareholders, distributions, on the other hand, need to paid in full to the unit holders.

This means the return in the fund is likely to be higher.

(The Australian/Katherine Jimenez)

Tuesday, 8 September 2009

"Fixed interest runs counter to Islamic banking" - Ahmadinejad

Iranian president Mahmoud Ahmadinejad is against a usury based lending system saying that fixed interest is usury and is against the country's banking laws.

“Fixed bank interest rate is usury and is described as illegal. Bank interest is largely planned to be a function of economic circle,” The president told a news conference on Monday.

Article 21 of the Law on Usury Free Banking Operations rules out usury in the country's banking system. The article reads: In its dealings with other banks, Central Bank of the Islamic Republic of Iran is not authorized to engage in banking operations which involves usury; nor are the banks among themselves.

The president added that the government is "determined to take the necessary steps to keep interest rates at single rate levels. We are planning fiscal disciplines to stick to this plan.”

Further to banking reform plans, Ahmadinejad said the tenth government would decrease unemployment to below 7 percent by pursuing its economic reform plan.

“Despite a global economic downturn and sanction challenges, we will manage to cut the unemployment rate to less than 7 percent during this presidential term,” Ahmadinejad said.

The official rates for unemployment in 2009 stand at just over 12%. The figures for youth under 30, especially females, is significantly higher.

The Iranian president also stressed that the cabinet under his previous term of presidency had succeeded in containing inflation despite two serious crises - a global economic meltdown and unprecedented sanctions against the country.

According to the central bank, Iran's inflation rate fro 2008 was 24.3%.

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Monday, 7 September 2009

The dust of riba: and the rush for gold

The Arabic word riba literally means “increase.” Generally we understand it to mean, “usury” or “interest.” In exchange for the privilege of a loan the borrower pays the lender an additional percentage of the loan’s sum. Shariah defines numerous other forms of riba, but this is the most common form in the modern world. Historically money lending of this type was forbidden in all prophetic traditions.

The earliest prohibitions of usury come from 4,000-year-old Vedic texts, the oldest religious manuscripts of Hinduism. In the Jatakas Tales of Buddhism, roughly 2,500 years old, usurious lenders are referred to as “hypocritical ascetics” (1). The Torah refers to usury as neshekh, meaning “a bite” and avak ribbit, literally “the dust of interest” (1). Sound familiar? Numerous warnings throughout the Bible guided Jews and Christians of the past to acknowledge the inherent injustice of such transactions. Deuteronomy 23:20 reads, “You shall not demand interest from your countrymen on a loan of money or of food or of anything else on which interest is usually demanded.” In the middle ages the Catholic Church interpreted passages like this as a strict prohibition against charging interest on any loan. It was the teaching of Thomas Aquinas that the purpose of money was to serve the greater good of the people by facilitating the exchange of goods needed to live a pious life. Adherents of all these faiths once recognized that such an economic system funneled wealth out of the hands of the borrowing class, into the hands of the lending class, further separating the rich and poor. In the modern world it is Muslim scholars who preach the dangers of interest. Just as Thomas Aquinas, and Aristotle before him, they teach the inherent oppression of usurious transactions, and they teach the use of money to promote the general welfare, to establish economic justice, and to facilitate as a medium of voluntary exchange and charity.

So… what is money? If you search Google for a definition of “dollar” the first result will be, “the basic monetary unit equal to 100 cents.” Which begs the question... what is a cent? to which you’ll receive the result, “a fractional monetary unit worth one-hundredth of the value of the basic unit.” It’s circular! Inshaallah, I will endeavor to illuminate the process by which the U.S. dollar comes into being, to show that the monetary system in the U.S. is built upon a hidden usury known as inflation, to argue that this inflation is predicted in the Hadith, and to propose some common sense solutions to the economic injustice inherent to the U.S. monetary system both from the Sunnah and from the U.S. Constitution.

In 1913 the U.S. Congress passed the Federal Reserve Act granting monopoly power to print money to the Federal Reserve System. The concept of the Federal Reserve System was actually not devised by the US Congress, but by a group of International Bankers who met in secret on an island off the coast of Georgia (2). The first fraud perpetuated by this system is the name itself. The Federal Reserve System is not federal. It’s owned by private shareholders, motivated by private profits. To prove this look to your phone book, where you will find the Federal Reserve in the business listings right next to Federal Express. The Federal Reserve System is not a reserve. There is no gold. There is no silver. They print a baseless paper note. Its only value is derived from public confidence in the U.S. government… which is declining. The Federal Reserve System is not a system. It is a central bank, which was bitterly apposed by the drafters of the constitution. The founders recognized the importance of honesty currency. They understood inflation, which is why they wrote in the constitution, “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.” (3)

So, why perpetuate this fraud? How does Congress benefit? The answer is limitless credit. The Federal Reserve gives Congress the ability to borrow money to fund their projects without directly taxing their subjects. But where does the money come from? It simply springs into being the moment they sign the loan. Unable to fund its devastatingly expensive wars throughout the world, the US government has abandoned the stability of a gold standard and embraced a fraudulent system of fiat currency. Fiat currency is paper printed by The Fed and borrowed by the government. The dollar is not backed by any commodity. It derives its value from legal tender laws that obligate subjects to use the dollar. Ironically, the dollar itself behaves like a commodity in the market, and like all commodities it becomes subject the market pressures of supply and demand…

Here’s the dust.

When the government borrows money from The Fed (with interest of course) they circulate an ever increasing amount of paper notes into the economy. Increased supply means decreased demand. The more they print, the less value the money already in the system holds. This is the cause of inflation. Most people incorrectly believe that inflation is the rising cost of products, but this is only the result. Inflation is actually the lowering buying power of the dollar. When the Fed prints money to pay for the government’s war spending the buying power of that new money is stolen from the buying power of the dollar in your pocket… it’s an invisible interest that is built into the U.S. monetary system. The Fed then obfuscates this by manipulating the interest rates on loans and savings accounts. So, while the dollar amount in a savings account may increase by interest, the actual value is decreased by inflation. Since the inception of The Fed the buying power of the U.S. dollar has dropped 96%. So today’s dollar is worth only 4 cents compared to the gold dollar of 1913. Soon it will not be worth the paper it’s printed on, and this country will enter into the same economic recession that toppled the Soviet Union. Fiat currency is a fraud. Like all forms of usury it funnels money out of the hands of the borrower, the government and by proxy the American people, and into the hands of the lender, the Fed and therefore the International Bankers.

The prophet Muhammad (peace by upon him) predicted this economic catastrophe when he said that one of the signs of the approach of the Hour is that wealth will increase to such an extent that one will not be satisfied if given one hundred dinars (4). Shariah defines a dinar as 4.25grams of 22k gold. In today’s gold market where gold just passed $1000 per oz. that’s a value of about $136. One hundred gold Dinars in today’s market would hold the purchasing power of about $13,600 (425g of gold). Let’s compare that with the purchasing power of the dinar in the time of the prophet(saw). One Hadith describes the prophet(saw) purchasing an old camel for 4 dinars (5). In U.S. dollars that’s $544. Another Hadith describes a gold and pearl necklace purchased for seven or nine dinars (6). In today’s market that’s $952 or $1,224. A similar Hadith is narrated of a gold necklace studded with gems beings sold for 12 dinars (7), which is $1632. These are not unreasonable prices in today’s market. The purchasing power of gold has remained relatively stable for 1400 years, and throughout history. It’s the value of the dollar, and fiat currencies like it, that fluctuates and declines. Today most Muslim majority countries have abandoned the gold dinar and instead based their currency on the U.S. dollar. Today 100 Kuwaiti dinars hold the purchasing power of $366 (11.4g of gold). 100 Libyan dinars hold the purchasing power of $84 (2.6g of gold). 100 Iraqi dinars hold the purchasing power of just 8 cents (.002g of gold). (8) If you take this Hadith to mean 100 gold dinars the value has not changed. 425 grams of 22k gold is still 425 grams of 22k gold. But if you take it to mean 100 of the fiat dinars printed in any Muslim majority country it has already come to pass. So, while the Kuwaiti dinar can boast that it is the highest valued monetary unit in the world (9), is worth only 3% of the value of the gold dinar prescribed by Shariah. This is because printing fiat money debases a currency, harms the economy, funnels wealth into the hands of the rich, and levies an invisible usury against the poor.

The solution to this looming economic crisis is obvious. Return to the Sunnah. Invest in gold and silver. Exchange in gold and silver. This is surprisingly easier than it sounds. Gold is becoming increasingly more accessible and more liquid in U.S. markets through websites like Websites such as deal in precious metal accounts and sell dinars and dirhams in the measurements of the Sunnah.

Imagine this scenario. Say you own a grocery and a customer comes in to purchase a loaf of bread costing $1.50. In exchange he offers you a choice. You can either accept 6 quarters, composed of 92% copper and 8% nickel, or 1 Islamic Dirham of equal value, composed of pure silver. Which would you take? The wise grocer would take the silver, and here’s why. If you hold the 6 quarters and the one dirham in a safe for 30 years the dirham will still buy a loaf of bread, and the quarters will likely not buy a slice of bread. Precious metals are inflation proof because they hold intrinsic value. Their value may fluctuate with the market, but they can not be devalued by the actions of Congress and the Fed. If that’s not enough of an incentive consider this. If you take the quarters you have made a sale. On that sale the government collects a sales tax from the buyer and an income tax on the seller. If you take the dirham you have not made a sale. You’ve traded two commodities of equal value, with no U.S. dollars exchanged. Using gold and silver as a medium of exchange keeps a community’s wealth in the community. Imagine the baraka in conducting your transactions, paying your zakat and sadaqa, or even giving a marriage gift in the denominations of the Sunnah.

The first and most important step is something you can do right where you’re sitting now. Make the intention. In your heart believe that gold and silver are real money, and that fiat money is a userous fraud. The next step is to educate yourself and other Muslims around you about these important subjects. Share this information with others. Copy it and distribute it. Locate and read The Gold Dinar and Silver Dirham: Islam and the Future of Money by Imran N. Hosein (10). Copy it and distribute it. It’s time that Muslims took steps toward protecting economic justice, both for themselves, and the society they live in. A basic economic principle is that good money exposes bad money. It’s time to revive this long lost Sunnah.

(SF Muslim Examiner)
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Sunday, 6 September 2009

Nigeria: Group Backs Sanusi on Islamic Banking

A group, Muslim Rights Concern (MURIC), has thrown its weight behind moves by the Governor of the Central Bank of Nigeria (CBN), Mr. Sanusi Lamido Sanusi, to establish Islamic banking in the country.
It would be recalled that Sanusi recently stressed the need to reassess the opportunities provided by the Islamic finance system in combating the current financial crisis.
However, MURIC in a statement by its Director, Dr. Is-haq Akintola, said “it is our considered opinion that the interests of all stakeholders in the Nigerian project should be taken into consideration.”
Akintola, who expressed misgivings over “barrage of criticisms from the traditionally Islamophobic Nigerian elite class”, however, said “this segment of the Nigerian population, though infinitesimally small in numerical strength, monopolises the paraphernalia of education, information and articulation, tools which they have never hesitated to exploit in their bid to masquerade falsehood in a garment of truth, particularly in arrogating all the priviledges in the land to other groups while ensuring that nothing goes to the Muslims. Whereas Almond and Verba defined democracy as a political system in which ordinary citizens exercise control over elites through norms accepted by elites and non-elites, the Nigerian intelligentsia would want this turned the other way round.”According to him, “We of the Muslim Rights Concern (MURIC) are not deceived by the anti-Muslim antics of the Nigerian elite, a minority which has been imposing its will on an overwhelming majority since independence. This group is well known for holding successive governments to ransom and blackmailing the oppressed and marginalised Muslims. Each time the Muslims express their minds and timidly request representation, they are shouted down and stigmatised as 'terrorists', 'fundamentalists', 'extremists', 'fanatics', etc. While MURIC frowns upon violence of any type, we are averse to the 'deafness' of the authorities to the yearnings of Nigerian Muslims. None of the demands of Muslims has gained governments' attention: Shariah, Free Friday, Islamic Banking, etc. No official response has ever been given to Muslims. It is as if the latter do not exist. This carefree attitude is responsible for most religious crisis in this country.
“Thus, a multi-religious nation like Nigeria should not be stampeded into any parochial system, its socio-economic setup must mirror the variety in its composition. Anything short of this is like putting a square peg in a round hole. Nigeria 's failure to involve all citizens and groups in rights and priviledges of the land has cost the nation very dearly in the past. The Niger Delta imbroglio, constant religious riots, ethnic crisis and incessant strikes are just a few instances.
“There are no silent fools in the world anymore. Nigeria should take a cue from other parts of the world where peace has eluded society due to the pursuit of assymetrical policies. Liberia , Sierra Leone , Congo DR, Zaire , etc. The marginalisation of Shiites in Iraq led to the downfall of Saddam Hussein and the attendant daily massacres.”
Akintola further added that “Democracy entails involvement of all. But in Nigeria Islam and the Muslims have been treated like lepers. Political scientists have always associated democracy with general will and popular participation. Jack Lively’s definition of democracy as a ‘situation of equality’, Margolis ‘equal opportunity to participate’ and Otwin Marenin’s contention that democracy exists when the institutions and policies of the society represent the consent and interests of all citizens testify eloquently to the need for the involvement of all.
“Britain has Islamic banks and they are doing well. The greed and reckless consumerism associated with Western banking system led to the present global economic meltdown. Countries all over the world are searching frantically for solutions. What is wrong if Nigeria tries the Islamic system too when it will not eliminate Western banking system but run parri passu?”

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