Monday, February 23, 2009

'Islamically-correct' investors faring well

As credit markets have imploded, triggering a global economic crisis, Islamically correct investors have seen a change of fortune. The conservative principles this small group of devout Muslims clung to during the economic heyday has insulated them from the worst of the past year's suffering, according to a report from Scripps Howard News Service.
Their renunciation of the interest-based economy kept them away from investments in financial services companies, whose stocks have collapsed, and out of traditional mortgages, it added.
"There was a time two or three years ago that Islamic finance was considered simply too conservative. "Right now, many people are recognising that maybe it wasn't such a bad thing." it quoted Professor Ibrahim Warde, author of "Islamic Finance in the Global Economy" and an adjunct professor at the Fletcher School of Law and Diplomacy at Tufts University, as saying.
The report noted that the Dow Jones Islamic Market Indexes, which represent benchmarks for Islamically correct investment categories, have been outperforming their non-Islamically compliant counterparts by 3% to 4% in key indexes. The two Amana Income and Growth funds, the largest Islamic mutual funds in the country with US$1.2 billion (RM4.32 billion) in combined assets, have been outperforming the S&P 500 in the past year by 13% and 7%, respectively.
Bay Area residents who bought homes through an Islamically compliant lender in San Jose, the Ameen Housing Cooperative, don't have to worry whether their lender will work with them if they lose their jobs.
Islamic lenders are required to work in good faith with distressed borrowers to figure out ways to make payments manageable - and co-op leaders say they will, the report said.
Warde and other Islamic finance experts and investors caution that the crisis doesn't mean that Islamic finance is a better model than Western capitalism. They say Islamic finance, a system of ethical finance supported on an institutional level, provides unique insight into an economic meltdown created in part by financial practices forbidden by strict observance of Islam, it added.
"I don't think there's anything miraculous about Islamic finance, or that it's a panacea," Warde told the newswire. "But we can understand why Islamic banks did well in the current financial environment."

(This story appeared in The Malaysian Reserve on Feb 23, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

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