Interview With Wael Abo Shady, Essay Example

How would you define Islamic Finance?

A hallmark of Islamic Finance is adherence to riba-free financial transactions. These business principles evolved from the need to develop financial contracts that conform to Sharia law. As such, these principles focus prohibition of fixed return, profit-and-loss sharing, participatory financing, prohibition of gharar, and equity-based financing. This system has been able to become institutionalized as a consequence of the implementation of Islamic social banks.

What distinguishes Islamic Finance from Conventional Finance?

Conventional Finance allows a profit to be made from the interest charged on a he principal amount. Associated interest rates can be based on a fixed rate or a floating rate. Payment is typically received from several installments over a period of time. A portion of each installment contributes towards payment of the interest and the remainder pays towards the principal amount. Islamic Finance contrasts from Conventional Finance because it prohibits transactions that lead to the accrual of interest. Instead, something is purchased on behalf of the borrower and it is sold back to the borrower for a profit.

Has there been a historical evolution in Islamic Finance? Can you please identify in whichareas?

A majority of the important events related to the historical evolution of Islamic Finance has been due to the opening of banks that support this style of commerce. The Mit Ghamr Savings Bank in Egypt opened in 1963, and was the first modern Islamic bank. The success of the bank demonstrated that it would be possible to open banks that concentrated on finance reflecting Islamic values. The Islamic Development Bank opened in Saudi Arabia in 1975, which allows Islamic Finance to have an international presence. Lastly, in 1979, the first takaful company, the Islamic Insurance Company of Sudan, was established, which allowed Islamic nations to hold insurance that would comply with the laws of Islam (Jamaldeen, 2012).

What is the current size of Islamic Finance?

The Islamic Finance market is currently valued at over $1.3 trillion, which makes it the fastest growing segment in finance.

How did Islamic Finance grow during the past decade?

Islamic Finance grew significantly in the past decade. According to financial records, the assets of the Islamic financial sector grew by 21% in 2006, 29% in 2007, 16% in 2008, 18% in 2009, 22% in 2010, 20% in 2011, and approximately 24% in 2012 (Hayat, 2013). It is likely that these values will continue to rise into the future.

What are the reasons behind the growth of Islamic Finance?

Since there is a constantly expanding Muslim population, the number of individuals who wish to support this form of finance will grow as well, which will increase its growth. Furthermore, Islamic financial products and services have gained a higher demand. For example, many Muslim nations command a great oil supply, which many of the world’s nations desire for trade (Steffensen, 2013). As a consequence, sharia-compliant products are preferred, which is paving way for expansion of Islamic Finance.

Are the perceptions towards Islamic Finance changing in the recent period? Can you explain why?

The perceptions towards Islamic Finance are tied closely into the social perception of Muslims. Many individuals have reversed their attitude of Islam since the September 11 terrorist attacks so there is a greater general acceptance of this style of finance that is so greatly intertwined with Islamic core values (Ali et al., 2010).

What are the challenges facing Islamic Finance?

Even though the general perception towards the religion has become more positive, there are still individuals and nations that are biased against this belief system. As a consequence, they are unlikely to accept the moral and ethical grounds that the system is based upon. As a consequence, it is unlikely that Islamic Finance will expand beyond Islamic nations easily, although this is a possible result in the future if proper political negotiations allow.

Which countries do you believe will have the highest growth in Islamic Finance and why?

Countries such as Egypt and Saudi Arabia will have the highest growth in Islamic Finance because these were the first nations to establish banks that follow these values. As a consequence, they are more likely to support the evolution of practices that allow for enhanced business practice. While all nations have the potential to grow, it is necessary for the government to fully approve of and understand the measures that must be taken to do so.

How would Dubai benefit from being the capital of Islamic Finance?

Dubai would benefit from being the capital of Islamic Finance because this would allow it to be the trade center of the Muslim world. This status will enhance the number of trade partners and the profitability of the region. This would enhance the lifestyle for all residents as well as a consequence of increased wealth.

Finally, can you please recommend ways that could help Dubai become the hub of Islamic Finance?

An essential way that Dubai can become the hub of Islamic Finance is by engaging in political talks with Islamic nations in order to solidify its position as a business partner. It must find ways to provide these countries with the best exports for the best prices in order to remain competitive. It would also be beneficial for Dubai to enter discussions with foreign nations that have large populations of Muslims that desire business to be done according to Islamic law. In this manner, Dubai could take charge of this section of the market ahead of other competitors.

References

Ali SM, Syed AR. (2010). Post-9/11 Perceptions of Islamic Finance. International Research Journal of Finance and Economics. Retrieved from http://storage.globalcitizen.net/data/topic/knowledge/uploads/20110912134240705.pdf

Hayat U. (2013). Islamic Finance is Growing Fast but Faces the Form-Versus-Substance Debate. Retrieved from http://blogs.cfainstitute.org/investor/2013/06/11/islamic-finance-is-growing-fast-but-faces-the-form-versus-substance-debate-video/

Jamaldeen F. (2012). Islamic Finance for Dummies. For Dummies.

Steffensen J. (2013). An Interview with Daud Vicary Abdullah. Retrieved from  http://www.nbr.org/research/activity.aspx?id=370