MORE THAN ONE WAY TO MARKET:

Banking in accordance with the Koran (Donald Greenlees, JUNE 2, 2005, International Herald Tribune)

In Asia, Europe and North America, bankers, fund managers, business consultants, accountants and lawyers are showing a growing interest in the potential of the Islamic market.

As of mid-2004, the Islamic financial market comprised 265 banks with assets of more than $262 billion and investments of more than $400 billion, according to a report by the International Organization of Securities Commissions.

The report estimated that Islamic banking, insurance and capital markets, although still only a small part of the global industry, had been growing at 10 percent to 20 percent a year for a decade. Within 8 to 10 years, the report estimated, as much as half the savings of the world's 1.3 billion Muslims would be in Islamic banks.

Moreover, leading bankers and analysts say the development of Islamic finance has recently surged as more Muslims seek to place money in Islamic investments and the sophistication and the range of their investment choices grow. [...]

Bankers and analysts attribute the upsurge to a number of factors: historically high oil prices, leaving the Middle East awash in money; the wider choice of products now available that comply with Shariah; and greater consciousness of religious duty among wealthy Muslim investors.

"We have looked at numbers on the growth of Islamic wealth," said Ng Nam Sin, executive director of the Financial Center Development Department at the Monetary Authority of Singapore, the nation's central bank. "A large proportion is being generated from the Middle East, arising from the oil money, in addition to wealth from this region. The momentum is there for further growth and demand for Islamic finance as an alternative to conventional finance."

Shariah, which is drawn from the Islamic holy book, the Koran, and the example of the life of the prophet Muhammad, governs all aspects of a follower's life, including financial affairs.

Forbidden commercial activities include production and sale of alcohol and tobacco and investments in casinos and hotels where alcohol is sold.

One of the most basic rules of Islamic finance is the prohibition of paying interest on loans or deposits. Islam also forbids certain kinds of risk-taking, especially financial activity akin to gambling, and it encourages the linking of income to productivity, profit-sharing and equitable contracts.

In the simplest Shariah contracts, known as musharakah or mudarabah, banks avoid charging or paying interest by sharing profit and risk with the customer, effectively playing the role of equity partner.

"You should not expect huge returns for doing nothing, is basically what Islam is saying," said Vicary, a 33-year veteran of banking in Britain and the United States who converted to Islam a decade ago.

The faster they figure out how to grow their economies consistent with Islam the better.

Posted by Orrin Judd at June 3, 2005 11:51 PM