Islamic Financial System is a Way Out from Financial Crises

by Haris Ahmed, Business Development Executive, AIMS

“Islamic Financial System provides a way to asset based ‘Genuine’ economical system and a way out from current global financial crunch. Islamic banking system is based on risk-sharing, owning and handling of physical goods, involvement of parties in trading, etc. Islamic financial transactions, in order to be permissible, should be associated with goods, services or benefits”, said by Mr. Haris Ahmed in a seminar by ‘AIMS’ in United Kingdom.........

“Islamic Financial System provides a way to asset based ‘Genuine’ economical system and a way out from current global financial crunch”, said Haris Ahmed, in a seminar on 1st October 2008 in London organized by ‘AIMS’. AIMS or Academy for International Modern Studies is one of the leading Islamic Finance training and consultancy organizations based in Chatham, United Kingdom.

Mr. Ahmed, who is a Business Development Executive at AIMS, explained that Islamic financial institutions are more close to the economy because they have to share the entrepreneur's risk by providing some capital and sharing the profit after. Islamic Banks don't give conventional loans with interest but they become shareholders and they share the risk of the entrepreneurs' success. He explained that Islamic Financial system prohibits ‘interest’ but it does not prohibit all gains on capital. The prohibition of a risk free return and permission of trading makes the financial activities in an Islamic set-up real asset-backed with ability to cause ‘value addition’. Islamic banking system is based on risk-sharing, owning and handling of physical goods, involvement in the process of trading, leasing and construction contracts using various Islamic modes of finance. Islamic financial transactions, in order to be permissible, should be associated with goods, services or benefits.

Islamic financial products are getting appreciation worldwide and it could provide safe havens in these challenging times. With US politicians scrambling to fix up the mess, and leaders on both sides of the American political divide call for changes to financial regulatory frameworks, it might not sound so far fetched to suggest Wall Street might learn from Islamic financing. In Islamic finance transactions undertaken, it's more asset based rather than debt based. The lack of debt in the Islamic finance sector shields it from many of the problems caused by bad credit. Banning short selling is one of the decisive elements in Islamic finance so it seems almost that the conventional markets are looking at the Islamic techniques which so far did not play any role in conventional markets.

The current Muslim population in the world is more than 1.5 billion, which is approximately more than 23% of the worlds’ population. Islamic Banking is one of the fastest growing financial sectors, worldwide. The industry size is estimated to be more than 750 billion and its yearly growth rate is approximately 20%.

In his speech, Mr. Haris Ahmed enlightened that the size of Islamic Finance industry can grow with a higher percentage, if some of the industry issues are resolved. For example, it is found in several Islamic financial institutions that human resources working in IFIs do not fully understand the standards and rulings of Islamic financial products. Due to this, they couldn’t follow the exact operational mechanism explained by Islamic shariah. In addition to that, the mechanisms of few Islamic Financial Instruments are unaccepted by several renowned Islamic scholars worldwide, including sharia scholars in Saudi Arabia, Malaysia, Pakistan, United Kingdom, Jordon, etc. As a result of these facts and doubts, large Muslim population is still hesitant to deal with Islamic financial institutions. However, if these issues are resolved, the size of Islamic Finance industry could grow enormously.

Academy for International Modern Studies, whose objective is to facilitate individuals to become expert Islamic finance professionals and companies to establish better Islamic financial system, has made a significant contribution in Islamic Finance Industry. Over the years it has maintained a purposeful mission of promoting industry professionalism and best practices in Islamic Banking and Finance industry through research, consultancy, corporate trainings, seminars, workshops and publications. AIMS also offers several certifications in Islamic Finance, Islamic Banking and Islamic Insurance. AIMS has several business partners globally, including United States, Canada, United Arab Emirates, Nigeria, Mauritius, Ghana, etc.

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