Global body set up to regulate Islamic banks
biz.scmp.com
Monday, November 4, 2002
REUTERS in Kuala Lumpur
Eight Muslim countries have launched a global agency to set standards for an Islamic financial system to end "debt slavery", according to Malaysian Prime Minister Mahathir Mohamad.
The basic principle of Islamic banking is the prohibition of usury or interest. It also outlaws investments in companies involved in gambling, alcohol and pig farming.
The Islamic Financial Services Board (IFSB), inaugurated in the Malaysian capital of Kuala Lumpur yesterday, is entrusted with setting standards for Islamic institutions and ensuring they conform with principles of Islamic sharia laws.
Dr Mahathir, in an address to about 1,000 delegates from around the Muslim world, said a hallmark of the Islamic system was that risk was equally shared between the lender and the borrower.
The international banking system stacked deals heavily in favour of lenders, he said, and some countries ended up in "debt slavery".
"They are not going to lend if they cannot gain control over their borrowers in order to recover their loans, irrespective of the misery this might cause.
"Clearly, debt slavery has not been abolished in the international financial system," said Dr Mahathir, who refused to accept a bail-out from the International Monetary Fund during the Asian crisis in the late 1990s or submit to IMF policies that caused economic pain for neighbours.
Bankers attending the inauguration of the board said growing demand for ethical investments cut across religions, and non-Muslims were increasingly active investors in Islamic instruments.
Some Arabs, who withdrew investments from the United States in fear of a backlash after the September 11 attacks on Washington and New York, were also putting more money into Islamic banks, they said.
"The backlash against Muslims following September 11 is, in fact, helping Islamic banks," said one Muslim Malaysian banker.
A Western banker said Islamic funds run by mainstream Western banks were also attracting interest from non-Muslims riding an ethical investment bandwagon.
There are about 200 Islamic banking institutions in at least 48 countries, with combined assets of about US$170 billion.
Under Islamic laws, banks make money through a system of profit sharing from returns and approved investments.
The Islamic finance sector was growing by 15 per cent a year, Dr Mahathir said.
Mainly Muslim Malaysia has been running an Islamic banking system alongside a conventional financial system, a trend that Dr Mahathir said would continue.
"The Islamic banking and finance have been described as a 'mirror of the sea'," Malaysia's central Bank Negara governor Zeti Akhtar Aziz said at the launch of the IFSB.
"For until and unless we have the courage to explore its depth, we would never be able to uncover the treasures that reside within," she said.
Islamic banking institutions in Malaysia represent about 8.8 per cent of total banking assets in the country, worth about M$65 billion (HK$133.4 billion).
In June, Malaysia completed the world's first Islamic global bond issue, lead managed by HSBC |
