Can Islamic Finance save the world economy?

1. ISLAMIC FINANCE AND THE WORLD ECONOMY by Muhammad Zahid Abdul Aziz Director, Muamalah Financial Consulting Sdn Bhd THE 8 TH ASIAN ACADEMY OF MANAGEMENT INTERNATIONAL CONFERENCE 18 th – 20 th December 2009 Jointly Organised by Pahang State Government, Asian Academy of Management & School of Management USM & University Malaysia Pahang

2. Note on the Speaker. Muhammad Zahid Abdul Aziz has 19 years of experience in Islamic Banking and Finance. Starting with Bank Islam Malaysia Bhd in 1990 he quickly made his mark as a Sukuk pioneer in Malaysia. He left Bank Islam in 2000 to form an Islamic Capital Market Consultancy in Kuala Lumpur called Muamalah Financial Consulting. In mid 2006 he left for Riyadh as Resident Sukuk Consultant to Bank AlBilad, Saudi Arabia's second Islamic Bank. At the end of March 2009 he returned to Malaysia to resume his position at Muamalah Financial Consulting. http://muamalahconsulting.tripod.com/ He may be contacted at [email_address]

6. ECONOMY National economies based on interest World economies based on interest Macroeconomic tools move economies by moving interest No economic justice in relationship between lender and and borrower of money Accepted as norm. Has never been challenged. Resistance to change even by the victimised borrowers of money

7. ISLAMIC BANKING AND FINANCE Wants economic justice between ‘lender’ and ‘borrower’ Wants to replace lender/borrower relationship with investor/entreprenuer relationship. Wants a society of investors and entrepreneurs instead of borrowers and lenders Wants a society driven by equity instead of debt. Wants a society that does not empower crooks. Wants a society based on trust and honesty

8. Wants a system that makes it difficult for crooks to benefit from system . Interest based collateralised lending allows crooks to benefit from system as lenders can safely do business with crooks. Under this system less urgency or even necessity to filter out the crooks. A system that does not allow lending and collateral taking means stronger filtering of customers and counterparties Wants a system free of gharar, maysir and haram elements Wants a system where the rules are fair between the owners of money and the users of money

9. CAN ISLAMIC BANKING & FINANCE PROVIDE THE ANSWER TO THE CURRENT WOES OF THE WORLD ECONOMY? Islamic banking and financing system operates alongside an entrenched riba based system Riba based system impact on performance of Islamic banking System. Not recognised by many. Blame placed on Islamic bankers; not on the inequities of the situation

10. Examples 1) Riba based systems sell defective but cheap products. Islamic banks wants to sell fairer products to customer but with greater assumption of risk. Higher risk requires higher price. Customers choose cheaper defective riba product. Islamic banks downgrade their product to equate conventional products to remain in business. 2) Islamic banks and riba banks compete for same deposits and financing Customers. Riba system gives edge to riba banks to win deposits and financing. Adherence to Syariah handicaps the Islamic banks in competing for deposits and Financing.

11. Required solution : Urge the authorities to ban riba banking Actual Solution : Spare the authorities; ignore the inequities of a dual system. Criticise the Islamic bankers for not delivering maqasid AlSyariah in a hostile and non Syariah compliant environment

12. REQUIRED PARAMETERS FOR ISLAMIC BANKING Single System pivoted on equity System operating in parameters of Islamic economics Islamic Economics operating in parameters of Syariah Law CURRENT POSITION OF ISLAMIC BANKING System skewed to debt financing as opposed to equity Very small in size compared to riba banking Operating in environment enveloped by riba banking Both systems operating within riba based economy Riba based economy operating within man made laws

13. CAN ISLAMIC BANKING & FINANCE PROVIDE THE ANSWER TO THE CURRENT WOES OF THE WORLD ECONOMY? Only if the whole package is adopted. Not if it has to operate alongside riba banking Even more so when both system operating within a riba based world economy. World must understand and support implementation of Islamic banking and Islamic economics Benefits not confined to Muslims but enjoyed by all Mankind. Alternative? Continue with Islamophobia and miss the chance to save the world.

15. TERIMA KASIH THANK YOU. TILL WE MEET AGAIN ILALIQO’ MA’ASSALAMAH