Sunday, September 5, 2010

The Global Financial Crisis And Islamic Finance

Sedikit info tentang Islamic Finance di Radical Middle Way. Baca dengan teliti dan fahami bagaimana Islam menyelesaikan masalah dan persoalan dalam Conventional Banking :-

Internationally, Islamic banks appear to be more resilient to the global economic turndown and international financial crisis than conventional banks. They tend to avoid the speculative investments, such as derivatives, that many analysts believe led to the financial crisis affecting conventional banks. For many observers, Islamic finance serves as a vehicle for recovering from the international financial crisis. The Islamic banking industry may be able to strengthen its position in the international market as investors and companies seek alternate sources of financing.

However, as Islamic banks operate within a global financial system, they have not been completely insulated from the recent economic and financial shocks. For instance, on the one hand, the Islamic financial industry is considered by many to be less risky because financial transactions are backed by physical assets. On the other hand, Islamic banks may be more vulnerable to fluctuations in the mortgage market, given their high activity in the real estate sector compared to conventional banks. The recent slowdown in real estate activity in the Gulf economies raises concerns about some Islamic banks financial positions.

Islamic Finance Regulation

Financial institutions seeking to offer shariah-compliant products typically have a shariah supervisory board (or at a minimum, a shariah counsellor). The shariah board would review and approve financial practices and activities for compliance with Islamic principles. Such expertise raises the attractiveness of shariah-compliant financial intermediaries to investors considering Islamic banking.

Shariah is open to interpretation and Islamic scholars are not in complete agreement regarding what constitutes SCF. Islamic finance laws and regulatory practices vary across countries. The lack of concurrent viewpoints makes it difficult to standardize Islamic financing. Many observers view standardization of SCF regulations as important in increasing the marketability and acceptance of Islamic products.

International institutions have been established to promote international consistency in Islamic finance. For instance, the Islamic Financial Services Boards (IFSB) puts forth standards for supervision and regulation. As another example, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), issues international standards on accounting, auditing, and corporate governance. Many leading Islamic financial centres around the world have adopted international SCF regulation standards.

Issues for Congress

As Islamic finance activities grow in the United States, critics raise concerns about the related capital adequacy and system risks. Proponents of Islamic finance assert that the ban on risk-taking mitigates many concerns. Some also view the integration of ethics and values into finance as a positive development, especially in light of recent U.S. business corruption scandals. Many investors reportedly consider shariah-compliant finance to be more resilient to global economic and financial crises than conventional finance. However, others point out that Islamic financial markets are still tied to the world economy and are not completely sheltered from the ups and downs of international markets.

The growth of Islamic finance in the United States may have implications for congressional oversight. Congress may be interested in evaluating the relationship between the current U.S. banking legal and regulatory framework and Islamic finance. Current U.S. laws and regulation may be broad enough to accommodate some aspects of Islamic finance. Other aspects of Islamic finance may pose some unique challenges to U.S. laws and regulations, such as applying rules created for conventional, interest-based products to Islamic products. There is debate about whether or not, or the extent to which, regulators should apply rules on conventional products to Islamic product counterparts.

Some U.S. financial institutions express concerns about the possible ties of some Islamic institutions to terrorist finance networks.  According to this viewpoint, there is the possibility that Islamic banking transactions may channel funds to terrorists or enable terrorists to access funds. Others assert that the risks of Islamic finance are not significantly greater or different than those from conventional finance and that the majority of recent terrorist financing cases related to SCF have been thrown out of court. In congressional testimony, one observer stated “there is no reason - in theory - to suspect that Islamic finance would be particularly immune or particularly vulnerable to abuse by money launderers or terrorist financiers.

Some proponents also assert that security-related concerns about Islamic finance stem from a lack of understanding of SCF or from stereotyping. There may be a “conflation of Islamic finance with hawala, an informal trust-based money transfer system prominent in the Middle East and many Muslim countries. Hawala transactions are based on an honour system, with no promissory instruments exchanged between the parties and no records of the transactions. Some analysts consider the hawala system particularly susceptible to terrorist financing.

Congress also may be interested in the possibility of Islamic finance as a vehicle for sidestepping U.S. and international economic sanctions. For example, the Sudanese government reportedly issued Islamic bonds to Gulf investors in order to circumvent U.S. sanctions.

Radical Middle Way

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