Saturday, June 14, 2008

DIFC studies standardization, Japanese Diet to allow Islamic finance

The Dubai International Financial Centre (DIFC) is launching a research effort to study the possibility for greater standardization of Islamic finance globally as well as within the UAE and GCC.

A new bill is being proposed in the Japanese Diet to allow banks to begin conducting Islamic finance. While there is very little domestic demand for Islamic finance, Japanese banks see Islamic finance as a way to attract investors from the oil-rich GCC, some of whom often will only participate in investments if they are Shari'ah-compliant.

Islamic banking should continually be aware of its position and competitiveness with conventional banks to ensure that it can continue growing rapidly says Nicholas Brewer. In Malaysia, for example, Islamic banks are used by many non-Muslims because they offer competitive pricing and some aspects of Islamic banking may be viewed as more favorable to the borrower.

An editorial in the Guardian questions whether the literal interpretation of the prohibition of riba as interest may cause some to overlook the greater social requirements of Islam. Overly focusing on 'avoiding interest' but not necessarily having a focus on the underlying reason for the prohibition (and other requirements beyond avoiding interest). It would be possible to create an exploitative payday loan with high cost to the borrower while adhering to a narrow interpretation of the prohibition of riba by using murabaha or ijara (although it would be unlikely to be approved once Shari'ah scholars looked into more than just its form).

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