INDONESIA: Islamic banking hailed as shield from financial crisis
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It is common to hear people in the Muslim world preaching a return to Islamic values as a shield against the allegedly depraved influences of the West on their culture and education.
But with the snowballing impact of the financial crisis on the Muslim region, leaders here are also considering the benefits of turning to Islamic standards in the domains of finance and economy.
High-profile delegates from 38 countries are visiting Indonesia, the world’s most populous Muslim country, for the promotion of Islamic finance and banking as a way to protect their region from the Wall Street model of doing business.
In the final statement at the World Islamic Economic Forum, which wrapped up Wednesday in Indonesia, delegates called on the Islamic Development Bank, or IDB, a multilateral financing institution based in Saudi Arabia, to take the lead in promoting Islamic finance.
Islamic banks are founded on the notions of Islamic laws, which prohibit the payment or collection of interest or investment in businesses that provide goods or services considered contrary to its principles.
They have grown considerably in the last decade with more than 300 Islamic banks and finance institutions spread over 51 countries.
Much has been said about how insulated Islamic banks are from the crisis.
The Financial Times said that these banks had suffered less than their conventional counterparts because they did not invest in subprime mortgages or complex derivative products.
In an article published yesterday on the forum, the newspaper noted, however, that some Islamic banks, particularly in the Persian Gulf, were beginning to feel the woes of the crisis as values of their underlying assets, notably property, start to tumble and liquidity tightens:
While Islamic banking could play a useful role, it would not be a “silver bullet” for the crisis. Bankers at the conference said greater standardization of structures, improved transparency and more innovative products were needed for the industry to develop.
Meanwhile, Muslim leaders were hawkish in defending Islam’s vision of economy and finance.
Malaysian Prime Minister Abdullah Ahmad Badawi reportedly told the forum that the West’s ‘unbridled greed’ was responsible for the worldwide economic slowdown and credit crunch:
We have inherited a system where people can trade what they do not own and the resulting inflationary pressure in the global market has caused immense damage to the economic well-being of the world’s poor.... Such is the impact of unbridled greed in the financial system where there is no accountability on money lending...The world is beginning to appreciate the need for alternative financial arrangements.
— Raed Rafei in Beirut
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