Thursday, June 18, 2009

The Economist on the mega-Islamic bank, regulatory changes to accomodate Islamic finance being abused in the UK, lessons from the crisis

The Economist has an article about the launch of a mega-Islamic bank called Istikhlaf that the founders Sheikh Saleh Kamel and Adnan Yousif envisage to be an "Islamic Goldman Sachs".

The rule introduced to avoid double taxation in Islamic home finance purchases in the UK is being abused by high-net worth (conventional mortgage) clients. This should serve as a reminder that regulations introduced to facilitate Islamic finance should be carefully designed so that they are not abused in other settings to avoid taxation.

Islamic finance: can it provide lessons for conventional finance to avoid future crashes and can Islamic finance learn things from the crisis? The head of Islamic finance proposes a way for central banks to create money (monetization) in a way that is Shari'ah-compliant, in a similar thought process to an article I wrote in 2007 for Clear Profit on GDP-linked bonds ("Debt alternative for Islamic states should be explored," Clear Profit, Issue 44, May 27, 2007, page 5).

In an interview with Emirates Business 24/7, Rushdi Siddiqui, the head of Islamic finance for Thomson Reuters, discusses the lessons that Islamic finance can provide the conventional financial industry as well as the direction it is likely to take in the next decade.

Another Malaysian Shari'ah scholar, Engku Rabiah Adawiah Engku Ali, weighs in on the debate over tawarruq saying they are premissible but "The fact is more on how it's being done rather than what it is. It is more on whether the asset is available, whether it can be delivered".

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