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Wednesday, 25 January 2012

Islamic banking: Kyrgyzstan, seize the hour!


Economic processes slow down across the world for recent half year. Debt crisis deepens embracing new European countries. Fitch, S&P and Moody's warn that not only banks of Spain, Greece, and Portugal are at risk but biggest backbone banks of Germany, Austria, Great Britain and France. Their bankruptcy is fraught with collapse of Eurozone.

China also concerns in a new wave of the crisis. Bloomberg Poll questioned 1,097 investors whereof 61 percent are waiting for collapse of the banking system. And only every tenth believes China will manage to escape problems.
A new world recession is looming. Some experts think that forthcoming crisis will be more amplitudinous than those which world survived in 2008. Best financial experts of Europe and America break their heads over how to elude the worst scenario.
Orients’ treasure
While they are reflection on the Islamic financing gathers pace. Islamic banks survived the crisis with minimal losses showing sufficient high growth at 15-20 percent per year. Experts believe that Islamic model of economy may become a decision of problems emerged from the global financial crisis. Today over 400 world financial institutions practice Islamic banking and their annual turnovers make up around $1 trillion. Deutsche Bank reports the volume of Islamic finances will almost double up to $1.8 trillion by 2016. Standard & Poor's expects increments of assets at the level of $2.8 trillion.
In a short, the system proves its value. Many countries of Old and New World realized this and the U.S. Switzerland, Great Britain and Germany have begun launching Islamic financing model.
Islamic financing is operating in Kyrgyzstan for 5 years and it demonstrates its value in practice. Share of Islamic financing in June 2011 reached 5 percent of all banks credit resources of the republic. And it will increase up to 10-12 percents by 2015 according to experts.
A lawyer never goes to law himself
“Islamic banks across the world successfully got over crisis as they rest upon other principles distinct from traditional credit activities,” an adviser on business development to the Board of Directors of EcoIslamicBank OJSC, Shamil Murtazaliev, tells.
He says that Islamic economic system bans profiteering, bank interest rates and any enrichment without creation of a real commodity or an actual cost service.
He notes money in Islamic economy is not a commodity but just means of exchange. A profit can be fairly earned only through trade or through partly risk-taking. “Islamic economic system pays special attention to human relations and moral principles of economic relationships that must contribute into prosperity of the society in whole, not separate individuals. A principle of social fairness is cornerstone of Islamic principles,” the banker says. He believes the world will realize the supremacy of Islamic economic system over economic model of speculative capital.
The difference of Islamic banking from traditional one is absence of loan interest. There are other financial and profit earning instruments.
“Murabahah, mudarabah, sharika”
These are major financial operations in Islamic banking. Murabahah means a particular kind of sale, where the seller expressly mentions the cost he has incurred on the commodities for sale and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. Mudarabah is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. Profits generated are shared between the parties according to a pre-agreed ratio. Sharika means partnership between a bank and a client and the profits are shared among the parties on the basis of their participation or on a pre-agreed ratio and the losses are shared on the basis of equity participation.
Besides, Islamic economy bans activity which is in conflict with Sharia: alcohol, drugs, gambling business as well as bonds, bank lending and investments into companies whose loan indebtedness is a major source of financing.
Golden rain
Kyrgyzstan has done a lot to launch Islamic banking but it is ahead to do more. Financiers plan to implement Islamic assurance, Islamic paper securities and other financial instruments. Improvement of legislation and political will of the Government are needed to do that.
“This will help to attract investments of richest countries of Arabia, Malaysia and other Muslim countries into economy of the republic,” Shamil Murtazaliev believes. “Representatives of 57 countries work in Islamic Development Bank (IDB) and there is a country competition among them where everybody lobbies interests of his state. Kyrgyzstan joined Islamic Development Bank recently and it is important to push forward interests of the republic for further development of Islamic banking”.
Dozen of largest IDB countries controls 70 percents of world energy resources and has accumulated substantial funds there. And now they are needed to make use of them including outside their countries within diversification of the economics.
In this context Islamic banking for Kyrgyzstan, having great potential for attraction of investments, must be considered as one of priorities in development of the banking sector of the country.
(24.kg news agency/25-Jan-2012)

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Alfalah Consulting  : www.alfalahconsulting.com 
Consultant/trainer: www.ahmad-sanusi-husain.com 
Islamic investment: www.islamic-invest-malaysia.com

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