Religion-governed economy

15-12-2011 09:06 AM

Adel Mounir


WATANI International
12 December 2010

 

Experts argue that Islamic economy is in fact a myth
Recent news wires have carried the information that Egypt, home to the Arab world’s largest Muslim population, will issue its first Islamic debt guidelines in 2011 to catch up with the Persian Gulf and Southeast Asia and help spur sales.
“The target in issuing these regulations is to help companies that want to issue sukuk (bonds),” Ziad Bahaa Eddin, chairman of the Cairo-based Egyptian Financial Supervisory Authority, said. “Right now we don’t have a framework to help anybody who wants to issue sukuk.”
Baraka Bank Egypt ESC, a Cairo unit of Bahrain-based Islamic lender Albaraka Banking Group, may sell dollar-denominated Islamic bonds, known as sukuk, in the second half of 2011, the bank’s chairman, Adnan Ahmed Yousif, said. Baraka, the Faisal Islamic Bank of Egypt and the National Bank for Development are the nation’s only financial institutions compliant with sharia (Islamic law).

 

Debt market
Global assets held by financial institutions that comply with sharia law may climb from about USD1 trillion to USD1.6 trillion in 2012, the Islamic Financial Services Board said in April. Egypt, where one of the world’s first Islamic financial institutions was established in 1963, has struggled to develop the Islamic debt market because of political and economic reasons, says Samer Sulaiman, professor of political economy at the American University in Cairo.
The development of Islamic debt in Egypt also was undermined in the 1980s and early 1990s by the collapse of investment companies such as al-Rayan and al-Saad, which failed after setting up ponzi schemes that claimed to invest in sharia-compliant assets, Sulaiman said.
Egypt, home to more than 70 million Muslims, has not as yet sold sovereign or corporate bonds that comply with Islam’s ban on interest, according to data compiled by Bloomberg.

 

Where the money comes from
The Islamisation of knowledge has long been one of the calls strongly defended by the Islamic current in the region. As for the science of economics, this is governed by rules that have nothing to do with religion. Islamic countries including Saudi Arabia and Iran simply abide by the rules of modern economics. In the 1980s Islamic investment companies used the growing tendency towards religiosity among the Egyptian society to absorb the savings of a great number of workers in Gulf States. By focusing their activities on speculation—a non-sharia-compliant activity—these companies managed to earn huge profits and pay extremely high dividends to their clients—who did not bother ask where the money came from. After a few years, however, these companies collapsed and hundreds of thousands of Egyptians lost their savings.
Economic experts argue that Islamic economics is in fact a myth. The whole issue is about flirting with Gulf money, they say, and banks and companies allegedly implementing Islamic rules make huge losses and misuse depositors’ savings—particularly when taking into account that government regulation is almost absent when this sort of banking is concerned.

 

Vested interest
Abdullah Shalabi, professor of economics at Ain Shams University and an expert in Islamic movements, indicated that the science of economics has nothing to do with religion, so neither Islamic nor Christian economics exist. “The process of productions has no religion,” Dr Shalabi says. “The phenomenon of the so-called Islamic economics has to do with the growing tendency to employ religion in all aspects of life.
“When society confronts major crises people take refuge in religion and—in our region—they Islamise everything. The Islamisation becomes stronger when some groups or forces in society have a vested interest in encouraging it.”
The Islamic investment companies of the 1980s were a good example, as they used an Islamic discourse to steal the saving of a large number of depositors.”

 

Islamic comeback
Prominent journalist and economics specialist Magued Atiya indicates that the so-called Islamic banks have suffered great losses over the past few years. “In 2010 the losses made by Faisal Islamic Bank stood at EGP46 million, the National Development Bank lost half its capital and the United Bank lost EGP216 million for the second consecutive year,” he says.
“It is unfortunate that 18 per cent of this bank’s capital was owned by Copts and about 35 per cent of its clients were non-Muslims, but after the bank’s chairman declared the intention to transform it into an Islamic bank, many clients decided to end their relationship with it. In an article I published recently in the weekly al-Ahali, the mouthpiece of the leftist Tagammu Party, I criticised such a move.
“There are now calls to shift the experience of Islamic banking to London. The head of the Union of Arab Banks, a Saudi national, has strongly criticised these calls on the grounds that their sole aim is to attract Gulf money. It seems as if we are back to the 1980s when religion was employed in the area of economics.”

 

Solving all problems?
Motaz Abdel-Fattah, a lecturer at the Cairo University’s Faculty of Economics and Political Science, said in an article he wrote for the liberal Wafd Party newspaper al-Wafd that: “Due to their commitment to Islam and their ignorance of it at the same time, some people think that there exists an Islamic way of dealing with all of society’s problems. Hence the notion that there is an Islamic method for democratic transformation, confronting famines, desertification, organised crime and so on.
“Yet this way of thinking is based upon religious sentiments rather than a mature understanding of the need for people to interact and exchange experience with the outside world.”
Articles on Islamic economics indicate that it is based upon two major principles: that money belongs to God and man is mandated by God to manage the way it is used; and that money is a means to measure value. It is not a commodity, so it should not be bought or sold (which amounts to usury).

 

Trading rules
Islamic economics is driven by a collection of rules: buying and selling should be managed through consent; items prohibited by Islam such as wine and pork should not be traded; one should not sell something he does not own unless one is mandated by the owner; risk-sharing is the criterion distinguishing Islamic economics; private property is protected by Islam since individuals are entitled to posses land, buildings and the like; Islam bans monopoly since it implies the misuse of people’s needs; individuals should not be allowed to posses main services and facilities, as these should be publicly owned and the State is the party mandated to control the way they operate; the Islamic inheritance system aims to divide wealth among people; when a conflict arises between public and private interests, the former takes precedence; markets should be monitored to prevent exploitation; alms and endowments promote social solidarity, since they help cover the needs of the poor; all kinds of gambling and speculation are prohibited.

 

Islamic banks worldwide
Osama Qais al-Dereai, CEO of Bait al-Mashoura, held a press conference on 20 October on the sidelines of the International Conference on Islamic Economics at which he said there were 562 Islamic banks operating in 54 countries all over the world. As for Islamic investment companies, these stood at 29 with most operating in the Gulf area. According to Dr Dereai, companies specialising in takaful (Islamic insurance) amounted to 20. “In less than three decades Islamic finance has grown to become a world industry working side by side with traditional financial institutions,” he said. “In general, risk has different meaning in Islamic economics that distinguishes between lending and speculation and works to strike a balance between private and public interests.”
A study recently released by the Deloitte Islamic Finance Knowledge Centre indicates that the industry of Islamic finance grows by 15 to 20 per cent annually. The value of its global assets is estimated at a trillion dollars. The industry is now facing mounting challenges, the most important of which is the current global economic downturn.

 

 

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