ISLAMIC FINANCE AND THE WORLD ECONOMYby

Muhammad Zahid Abdul AzizDirector,

Muamalah Financial Consulting Sdn Bhd

THE 8TH ASIAN ACADEMY OF MANAGEMENT INTERNATIONAL CONFERENCE

18th – 20th December 2009

Jointly Organised by Pahang State Government, Asian Academy ofManagement & School of Management USM & University Malaysia

Pahang

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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 zaziz@hotmail.com

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RIBA BANKING & FINANCE

System Pivoted on interest

System Operating within Riba based economy

Riba based Economy Operating within Man made laws

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FEATURES OF RIBA BANKING & FINANCE

Owners of money are supreme

Capital lent must be returned intact at all cost plus predetermined return on capital

Irrespective of profit or loss outcome of user of money

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KNOWLEDGE

Economic theories pivoted on interest

University subjects based on interest based economy

Centuries of education based on interest driven subjects

New sophisticated products and subjects pinned on interest based transactions

Risk management tools to perpetuate wealth of money lenders with no concern for injustice of relationship between lender and borrower.

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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 andand borrower of money

Accepted as norm. Has never been challenged.

Resistance to change even by the victimised borrowers of money

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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 insteadof 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

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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. Underthis 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 moneyand the users of money

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CAN ISLAMIC BANKING & FINANCE PROVIDE THE ANSWERTO THE CURRENT WOES OF THE WORLD ECONOMY?

Islamic banking and financing system operates alongsidean entrenched riba based system

Riba based system impact on performance of Islamic bankingSystem. Not recognised by many. Blame placed on Islamic bankers;not on the inequities of the situation

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Examples1) 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.

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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

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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

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CAN ISLAMIC BANKING & FINANCE PROVIDE THE ANSWERTO 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.

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TERIMA KASIH

THANK YOU.

TILL WE MEET AGAIN

ILALIQO’ MA’ASSALAMAH

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