Tuesday, January 8, 2013

Islamic finance should not be debt-based and ‘Islamist

Islamic finance, often touted as the cure for the European crisis, will not be able to save the European economy unless certain changes are made in the way the products are structured, according to industry experts.

The European crisis was caused mainly by a debt-driven financial structure, which is what Islamic finance aims to avoid, but Islamic products have ended up “mimicking” their conventional counterparts by adopting the same debt-driven base, said Associazione per lo sviluppo di Strumenti Alternativi e di Innovazione Finanziaria chairman Alberto Brugnoni.

Brugnoni said because of the debt-based structure of a lot of Islamic finance products in Europe, when compared side-by-side, ethical financing has very often turned out “more Shariah-compliant” compared to Islamic finance.

Ethical financing, also known as civic, social, or sustainable banking, is financing concerned with the social and environmental impact of its investments and loans.

Brugnoni was one of the panellists discussing the future of Islamic finance in Europe during the recent Global Islamic Finance Forum (GIFF) in Kuala Lumpur.

Fellow panellist Antwerp Bar Association lawyer Paul Wouters agreed. He said: “Even if we offer every Muslim in Europe an Islamic product, but if it adheres to the debt-based economy, what are we going to change? Are we even offering a real alternative?”

Brugnoni said: “Most of the Islamic products, the murabahah-based ones, are debt-based. There is a tremendous amount of money that is leaked out into the conventional system.

“We call it Shariah-compliant, but where are the values? Islamic finance has a very clear approach (based on real assets) but on the balance sheets of most Islamic banks are still creating money the conventional way.” To promote growth, Islamic finance should not isolate itself from the public by adopting an “Islamist” approach said Brugnoni.

[The Malaysian Reserve, 8 Oct 2012]