The Bahrain conference on "Investment Opportunities and the Challenges of Derivatives in the Middle East", held on the 25-26 October, created a stir in many ways.
The conference was really about global developments and challenges in Islamic banking and finance and the increasing co-operation between Islamic and Western financial institutions. The air was expectant with the news that Citibank, the American financial giant in which Prince Walid bin Talal, has a sizeable stake, is reportedly in the process of setting up a wholly owned Islamic bank in Bahrain. This would be the first Islamic bank to be owned by a Western financial institution.
Yet Mohammed Al-Shroogi, Citibank's Vice-President for the Middle East, could not be enticed by a sense of occasion. He refrained from mentioning his bank's imminent plans in Islamic banking. But there was a hint of things to come; "Citibank sees a multitude of synergies we can pursue working with Islamic banks to link their depositors to investment opportunities in markets around the world. Our international network of branches and offices, our market knowledge, our product engineering capabilities and our technological infrastructure are resources we can put at the disposal of Islamic investors, whether their interests lie in Eastern Europe, Latin America, South East Asia of any market of their choosing".
Current estimates of funds now available in Islamic banks exceed $60 billion, says Mr. Al-Shroogi. The deposit base is estimated to be growing at an average of 15 per cent a year. And Mr. Al-Shroogi is not the only banker who expects Islamic banks’ deposits to reach well over $100 billion by 1997.
"Empirically, "he added, "despite its widespread acceptance today, there is no evidence to suggest that conventional, interest-based banking is the Only, or even the best, banking system to serve the needs of the 21st century".
Indeed, what was striking at the Bahrain conference was the growing number of Western 'experts' on Islamic banking appearing on the banking and academic scene. By the time the Harvard University's Centre for Middle Eastern Studies publishes its comprehensive survey of Islamic banking at the end of 1995, academics such as Dr. Don Babai are bound to become increasingly familiar with such terms as morabaha, istisna, ijara, Shariah and so on.
The study, according to the project director Dr. Don Babai, will look at various aspects of Islamic banking and finance including terminology, issues of interpretation, products, regulation, accounting standards and so on. Whether the Harvard approach contributes anything new to the Islamic banking phenomenon remains to be seen. It will make however instant Islamic banking 'experts' of the 20 or so people involved in the project.
At the same time, a growing number of Western bankers are now so familiar with the Islamic banking terminology and some such as Glenn Stewart, Head of Islamic Banking at Al-Gosaibi Investment Services, are now examining products in reference to primary sources in hadith literature and fiqh. Mr. Stewart actually spoke on financial derivative products in reference to hadith add fiqh, quoting and analysing hadith of such companions as Abu Said al-Khudri, Amr bin Sbuaib, Abu Huraira, Anas bin Malik and many others.
He also examined the concept of options analysing their Western context and trying to see how the hadith and the fiqh literature relates to them. "Clearly, any derivative instrument that is based upon riba either in the underlying instrument or in the derivative instrument would be forbidden. The Islamic prohibition of riba is absolutely explicit in both the Quran and the Sunnah and needs no further elaboration. As a result option contracts on interest bearing debt securities for example would clearly not be permissible under the Shariah. He then goes on to discuss "a financial product that does not contain an obvious element of Riba. “After consulting the hadith of Malik bin Aus Al-Hadathah, he concludes that one requirement for an exchange of monetary asset would appear to be that the exchange be made on the spot. Secondly, he adds, any exchange of monetary assets must be like for like and equal for equal. And so on.
Only a year ago, this kind of analysis from Western practitioners of Islamic banking would have been unheard of. The fact that they are now showing this level of interest in Islamic banking underlines the fact that the phenomenon is now seriously taken by them and that it is indeed big business.
This re-culturalisation of Western bankers especially those with an interest in the Muslim Countries and in profit and loss(PLS) banking, is a far cry still today of the majority of Western bankers who still "eat, drink, sleep and think interest (riba)".
The other major stir was caused no less by Sheikh Saleh Kamel, Chairman of the Dallah Al-Baraka Group, who in his speech essentially debunked the whole idea of derivatives and Islamic banking as incompatible. However, Sheikh Saleh did stress that co-operation between Western and Islamic banks is possible. Islamic banks would in a way spread the message of riba-free banking and if they can influence Western banks to partake, then all the better. The line between banking and dawah for Sheikh Saleh is indeed very thin. |
