Islamic banks did not provide true Islamic banking products. Instead, they gave an Islamic name to products of the commercial banks to attract clients who did not want to deal in interest, explained Professor Mahmoud El Gamal, the  Chair of Islamic Economics, Finance and Management at Rice University in Houston, Texas,  US.

El Gamal, who also is a  professor of economics and statistics,   spoke to Khaleej Times on the sidelines of a seminar on Africa-Arab Gulf relations at the Emirates Centre for Strategic Studies and Research. The seminar ended on Wednesday.

Dr El Gamal criticised the Islamic banks around the world stating that they have the same products that go through the same investment channels as those of the commercial banks, such as securitisation, Sukouk (bonds) and Murabaha (interest).

"In the past 30 years of Islamic banking, no 'authority' has been established that can inform the international concerned bodies such as the IMF about their financial and investment products. Hence, no one has a clear picture of the activities of the Islamic banks, the number of their institutions and branches", said Dr El Gamal.

"We have heard that the total investments of the Islamic financial institutions are about $ 900 billion. However, we are not sure about the accuracy of this figure", he added.

Dr El Gamal said that the effects of the financial crisis on Islamic banks could not be known because many governments, such as Turkey, support these banks. Meanwhile, he pointed out that the emirate of Abu Dhabi, as a model, has diversified its economic activities in the past years and not placed all eggs in one basket. "Hence, Abu Dhabi can avoid the consequences of the crisis easily", he said.

Dr El Gamal added that Abu Dhabi has diversified its investments not only in the oil sector, but also in tourism, properties and financial services.

He expected that the global economy may take at least five years to oveercome the impact of recession. Deregulation of the present financial system and introduction of new regulations is essential for the global economy to pick up, he said.

The GCC countries will have to find new ways to invest their petro-dollars because their economies do not have the capacity to invest the huge returns from oil, Dr. El Gamal said.

ahmed@khaleejtimes.com

© Khaleej Times 2009

 

Community Comments (2) - Comment on this article

The opinions of the authors expressed herein do not necessarily state or reflect Zawya. Read our Comment Policy.

 

Re: Definition of Islamic Banking by Imran Lakha, IT, IT - 09-Mar-09
I dont think this would be possible to create an authority within a $900Bn+ market. You have to understand that making money is the crucial point behind these so called Islamic Banks.

These are the steps of the Govt should seek to clarify for their people:

1) Ensure that all capital or financing is proven to be Halal; or obtained in a Halal manner;
2) ensure that all Banking Models and processes are agreed with a panel consisting of Intellectuals in related fields;
3) Clear and concise accounting practices;
4) All Islamic Bank have a operating ownership by a Muslim Govt.
5) All profits are re-imbursed in improving the welfare of the poor and needy...

A foundation of Islamic banking is ensuring the borrower has the ability to borrow monies for a fixed period and agreed payement sheme that suits his or her needs. Both parties must meet these requirements of the terms of contract.

Simple... [Report Abuse | Email to a Friend | Reply to this Comment]

 

 

Definition of Islamic Banking by Fuzail Zubaid Ahmad, General Manager Investments, H. A. K. Group, Saudi Arabia - 08-Mar-09
I was not surprsied to hear Professor Gamal's comments; nobody is, i am sure.
Overwhelming proportion of Islamic Banks' assets are interest based and ordinary people like me will never understand how contemporary Murabaha and Ijarah financing methods are accepted by islamic scholars as sharia compliant. Neither Murabaha, nor Ijarah are financing tools.
In other words, muslims should not care about the accuracy of figures on "islamic finance". These are only a special types of interest based loans and hence might as well be added with figures on conventional banking.
True islamic banks will never aid or abet financial crises because islamic modes of financing are equity instruments. There are some fixed cost financing solutions too, but these are between two genuine businesses, without a financial intermediary in between.
Lastly, i humbly suggest that muslim governments should form a central islamic banking authority that should do as follows:
a. Develop standard islamic financing contracts with stamp of approval from significant schools if islamic jurisprudence.
b. Promote development of pure islamic banks that use only these standard contracts.
c. Encourage existing "islamic banks" to graduate into true islamic banks by using only the standard islamic financing contracts.
d. Provide guidence to islamic banks and conduct sharia audit each year.
e. Share figures on islamic banking with WB, IMF, etc.

This central agency should hire conventional banking and finance professionals, as well as accountants, so that the islamic scholars on the panel are kept fully aware of conventional financial products. [Report Abuse | Email to a Friend | Reply to this Comment]

 

 

 

 

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