IMPORTANCE OF ISLAMIC FINANCE AND PRINCIPLES OF THEIR MODEL

Rusten U. Amalbekova G.E

M.Kh.Dulaty Taraz State University,Taraz city.

The global economic and financial crisis has exposed deep contradictions in the existing financial system and this led to a growing interest in different models of the financial system, in particular to "Islamic Finance". The current financial crisis has provided Islamic Finance an opportunity to assert itself as a competitive alternative to traditional Finance by offering investors in other asset classes and markets. The world has come to a consensus that the unregulated capitalism that led us to the crisis must be rebuilt in order to provide greater flexibility and stability of the financial system. In this article we will consider the principles of Islamic Finance and the possibility of capital investment in terms of socially responsible investing. While I would like to formulate a key hypothesis of this text: Islamic Finance, we consider not only as the experience of several countries, which are characterized by the use of this model [1], but also as the prototype of alternative models of financial system.[2] If we turn to some factors of the financial crisis that hit almost all of the capitalist system, we note that none of the factors are not peculiar to politics, based on principles specific to the model of Islamic Finance:

– excessive lending too burdened with the loans; consumer relationships (purchase, sub-Prime lending); the agricultural debt;

– opaque financial security: deceptive ratings (the level of security was AAA rated mortgage-backed securities, which are generally difficult to assess);

– mismanagement: a distorted system of incentives (generous bonuses payment Manager), while shareholders suffer; weak supervision (destroyed system with disparate regulation); regulatory errors (capacity of the shadow banking industry to 10 trillion dollars; low level of validation before the confirmation of the loan) [2].

Thus, the crisis forces investors to pay attention to the system of financial relations based on transactions involving real values and risk sharing. And here it is appropriate to talk not only about the principles of Islamic Finance, but also on the development of ethical investment funds and socially responsible investing.

Modern Islamic Finance is a young but energetic system that becomes an alternative form of financing, and at the same time a significant part of the global financial system. Annual growth of 15-20% over the last few years and expected future growth of 30% this industry is impressive [3].This market is estimated at approximately one trillion dollars in the long term it could rise to four trillion [4].

Paradoxically, in Europe an increasing number of residents expressed willingness to use Islamic banking instruments, and their share even more than in Muslim countries. For example, in the UK, this willingness was expressed by 75% of respondents, while in Saudi Arabia 65% UAE – 25%.

The UK is a recognised centre for the development of Islamic banking in the West, and according to forecasts, in the coming years can enter into a three of world leaders. According to a partner at Berwin Leighton Paisner Andrew Baird, the emergence of Islamic banks – HSBC Amanah, UK"Islamic Bank of Britain, etc. – are made possible thanks to the developed financial infrastructure and establishing the necessary legal and tax frameworks [5]. Currently, Islamic Finance and banking institutions have several advantages in comparison with traditional Finance. In 2009 the Banker survey of Islamic Finance showed that the assets of the 500 largest financial institutions in accordance with the principles analyzed our model, increased by 28.6%, reaching US $ 822 billion from $ 639 billion in 2008 (forecasts are that this figure will exceed $ 1 trillion in 2011). While asset growth in the top 1000 world banks in 2009 fell to 6.8% from 21.6%. Islamic institutions were able to maintain the 28% annual growth achieved in the last three years.

Highlighting the key principles of "Islamic Finance", note that it is an industry based on the principle of equity and financial justice.

Islamic principles are not allowed to sell what one does not possess (that is not in the ownership of person). Practically, this is manifested in the restriction of the use of derivatives and a ban on short selling. Also prohibited speculation and gambling.Contract certainty and transparency are other key principles. Contracts should be clear and not associated with any uncertain future events.

Islamic banks do not invest in traditional instruments associated with interest and therefore not exposed to "toxic" us sub-Prime mortgage loan.Islamic banks do not create money and hence the money multiplier. In the Islamic system compared with the conventional detectable level of savings in the economy is much lower, which provides the basis for financial stability and sustainable economic growth.

In particular, in accordance with the principles of Islamic financing, return on equity determined by the marginal efficiency of capital, time-preference and the positive growth of the economy. This means that Islamic banks are always profitable provided that real economic growth is positive. This creates the fundamental difference between Islamic banking where profitability is fully secured by real economic growth, and traditional banking services, where profit is not primarily dependent on the real economy [4].One of the reasons these principles is that for countries where they originated and developed, is more traditional emphasis on solidarity, rather than individualism. In the Islamic religion this is reflected in the forms of General priority of spiritual values over the values of the individual subject. It shapes Muslim culture and the foundations of the Islamic economy.

In Russia currently actualizarea question the necessity of studying and analyzing the experience of the functioning of the "Islamic Finance" (held an international conference exhibition on Islamic business and Finance in Kazan and Moscow). However, the idea of emergence in the Russian Federation, the Islamic Finance in practice requires a multi-step implementation. The practical application of Islamic financial instruments is possible through the implementation of the "roadmap to Islamic Finance in Russia", which is a document of step by step scenario of the development of Islamic Finance in Russia, including:– preparation of legal and regulatory framework as the main component of the Road map;

– plan optimal development and built in time the main stages of this process;

– the Outlook for the industry in the long term [5].

In this context, we believe it is important to consider socially responsible investment, to which today, more and more comes to Western society and who have much in common with the ethical norms of Islamic Finance. These principles in recent years are beginning to manifest themselves in Western economic practice and theory, where everything is often mentioned about the importance of social capital and values stability, social responsibility not only the state but also business.

Under the socially responsible investing (socially responsible investing,social investing,socially aware investing,ethical investing,mission based investing,natural investing )is commonly understood as an investment process in which through a voluntary and conscious choice of criteria and methods of investing is manifested in the responsibility of the investor for the consequences of his investment for society, the environment and sustainable development, as well as his personal views and beliefs about social issues, socio-cultural and religious values [4].

Returning to the above principles of Islamic Finance, it should be noted that modern, socially responsible investments have deep ethical roots common to the Christian and Islamic civilizations. Even in biblical times, Jewish law contained a rule prescribing how to manage money in order not to violate ethical standards. Holy Scripture the Quran and the body of legal and religious norms of Sharia determined the range of financial operations, allowed devout Muslims. In the U.S. XVI. the Protestant sect of Quakers and Mennonites professed a special relationship to money based on the principles of human equality and the unacceptability of violence [7]. Conducted by several authors [8] research in the field of development of the market for socially responsible investments allow us to distinguish three main stages of this process:

Stage I – the period of the rise of the market for socially responsible investment (Sri), which lasted until the early 70-ies of XX of XX century the First manifestation of socially responsible investing – ethical investment, based on the rejection of investments in certain companies with the purpose of realization of individual moral principles and beliefs.

Stage II – the period of formation of the basic elements of the market of SOYBEANS and its formation (early70s – late 90-ies of XX century). During this period, the purpose of SOI was to achieve maximum compliance with the investment beliefs and attitudes of the investor. The main investors were private individuals, mutual funds (serving private investors and small organizations), and civic and religious organizations .The next important factor that influenced the SOYBEAN development was the creation by the company KLD Research&Analytics in 1990 index Domini 400 Social Index, the first stock index for the SOYBEAN market, which later became the benchmark for most portfolios SOY. Index Domini 400 Social Index was created based on the S&P 500 index from which were excluded 250 companies that do not meet social and environmental criteria, and added 150 companies . In 2007, the SOYBEAN market volume reached 7 trillion. and is currently represented in more than 15 countries around the world – USA, Europe (UK, Netherlands, France, Italy,Belgium, Denmark, etc.), Canada, Australia and New Zealand, Japan and several developing countries.

Stage III – the period of dynamic development of the market of SOYBEAN (beginning of the XX I century).Since the beginning of the twentieth first century begins a new period in the market of SOYA associated with the change in the composition of market participants, the emergence of the SOYBEAN mass, common international trend.The development of the regulatory infrastructure in the field of SOYBEANS also contributed to its spread. In 2001 in the UK, changes were made to the 1995 law "On pensions", which establishes the obligation of pension funds to officially announce the adoption of a policy of SOYBEANS or rejection of such. Similar amendments in respect of pension, investment funds and other financial institutions were adopted in the United States, France, Australia, Germany, Sweden, Belgium, USA, Norway, Austria, Italy.

At the present moment the structure of the market of SOYBEANS presented in the main financial instruments of the securities market – stocks, bonds, securities investment funds etc. the Share of other instruments is negligible and mainly associated with community investing microfinance, venture investment, banking services.

In conclusion, it should be noted that today it is necessary to raise questions about the inclusive (incorporates) the development of the financial sector and on the process of interpenetration of "Christian" and Islamic Finance. It is important that "ethics" ("Christian" and Islamic) Finance claim social justice, the eradication of poverty and give particular importance to the issues of redistribution of wealth and meet the needs of all members of society. The emphasis on creating wealth through the implementation of the concepts of "social capital" and the innovative use of financial mechanisms and structures will allow, in our opinion, contribute to the emergence of new forms of governance that are socially, culturally and economically inclusive.

Bibliography

1. Kinder P.D. SociallyResponsible Investing: An Evolving Concept in a Changing World. – Boston, Mass.: KLD Research&Analytics, Inc., 2014.

2. Ibraeva M. Islamic nuances // Millionaire. 2016. No. 26-28.The current analysis of the market of Islamic Finance from the company Oxford Analytica.- URL http//Islamic-finance.ru/board/2-1-0-7

3. Islamic Finance: an overview. Presentation for the conference "Islamic banking: the nature and perspectives of Russian financial market", the hall of the MICEX, April 23, 2014 – M., 2014.

4. Bliz George. About the successes and challenges of Islamic Finance // The Economist. 2016. No. 8596.Bechtereva K. B. Socially responsible investing in the securities market: a retrospective and trends // // Finance and credit. – 2016. – № 21(357). – P. 157.

5. Chaldayeva L. A., Kilyachkov A. A. the securities Market. M.: Yurayt. 2010.

6. P. Trunin, M. Kamenskikh, M. Muftakhetdinova Islamic financial system: current state and prospects of development. M.: IET. 2016

7. Chaldayeva L. A., Kilyachkov A. A., Dydykin A.V. Residual risks: definition, description and methods of reduction. "Finance and credit" № 28, 2016, Pp. 16–23

8. P. Trunin, M. Kamenskikh, M. Muftakhetdinova Islamic financial system: current state and prospects of development. M.: IET. 2014.