Schmidt V.A., Amanbayeva D., Darinov M.
Kostanai State University named after A.Baitursynov, Kostanai,
Kazakhstan
HOW ISLAMIC FINANCE WORKS
Dubai’s recent debt problems have brought
attention to the growth of Islamic finance. A government-owned group of
companies, Dubai World, has been seeking to restructure twenty-six billion
dollars of debt. About six billion of it is in Islamic bonds, including a three
and a half billion dollar bond set for repayment. The biggest difference
between Western and Islamic finance involves beliefs about charging interest on
borrowed money. In Islam, the basic idea is that you should not make money from
money itself. Instead of interest, lenders charge fees.
The bank will estimate its costs based on
its fixed costs, variable costs, the cost of their employees, the rent and so
on and so forth. And from that they estimate how much they are going to charge.
This system can make Islamic financing costly. The costs of the system are
shared by the borrowers. The fewer the borrowers, the more each has to pay. In
many cases, Islamic financing requires the lender and borrower to share profits
and losses. That means with Islamic bonds, called sukuk. The bondholders are
buying a share of a business or property.
If business is good, then they could get
back more than they expected. But if it fails, then there is no guarantee of
repayment.
Islamic bonds can be structured in different ways, but
a major idea is shared profit and loss. Islamic lending practices are also
supposed to be socially responsible. In world banking, the total share of
Islamic finance is less than one percent. But it is growing at a rate of
fifteen to twenty percent a year. There is growing interest in Islamic banking
in the West.
London is becoming a center of Islamic
finance. And France recently proposed changes in finance laws to protect
Islamic bondholders. Estimates differ, but as much as one and a half trillion
dollars may be managed under Islamic rules. In two thousand eight, the
International Monetary Fund studied the financial security of Islamic banks. It
found that their lack of complex products like futures and derivatives limits
the ability to spread risk. Bet on the new technology as a basis for growth of
the UK economy is complemented attempts to turn London par with Dubai and Kuala
Lumpur at the center of Islamic finance.
Ambitious bid government of David Cameron
has been made at the 9th World Islamic Economic Forum, held under the slogan
"Changing the world, a new relationship." As already established a
platform for exchange of views on economic developments in the Muslim world, it
was first held in a non-Islamic country. At the London event gathered a record number
of participants - 2700 delegates from 128 countries of the world. Islamic
banking and Islamic financial services have been at the forefront of
discussions on the London forum.
It should be noted that representatives of
the banking sector, particularly Muslim countries drew attention to the fact
that while the post-crisis recovery of the global economy was going very
slowly, the dynamics of the Islamic finance market remained high - up to 15 %
per year. Islamic finance growth rate now 50 % higher than the growth of
traditional banking services. Over the last decade, the global market for
Islamic financial services has grown, according to various estimates, a
trillion and a half trillion dollars, and experts believe that a steady growth
to continue. Analysts predict that in the coming years the growth potential of
the sector will be $ 4 trillion. So-called "Islamic windows" is now
open to 110 banks worldwide, 20 of them are in the UK. According to forecasts
Britons global Islamic investments in 2014 will exceed the figure of $ 1.3
trillion. And, of course, recognized as Cameron, London wants a significant
part of this Islamic investment went to the UK.
However, at the same time, the conference
noted, the fact that a number of factors restraining influence on the further
progressive development of this sector of the global financial market. In
particular, the experts conclude that it is a serious problem today was the
lowest harmonizing existing rules and regulations "Islamic finance ",
which operate in different countries. Financiers stressed the need to ensure
their compatibility with the rules and banking regulations of Basel-III. In
addition, independent experts have pointed to the fact that currently the
market is working a limited number of Islamic financial products. And besides,
even in Islamic countries to these financial products distrust persists.
Speaking at the Forum, British Prime
Minister David Cameron promised that the current government will seek to
establish Islamic financial institutions in the City of London the most
favorable conditions, though in full compliance "with the rules of
Sharia", which, according to London, will attract "the Islamic
capital”. The Prime Minister announced that the UK Ministry of Finance plans
early next year to release a sovereign Islamic bonds (sukuk), corresponding to
the "Sharia". The issue amounted to 200 million pounds. It could be
the first issue of such securities in the West. These securities, according to
the Cabinet, stimulate the development of Islamic finance in the UK, as they
will be reliable instruments for investment.
In turn, the London Stock Exchange plans
to develop a special index to track the dynamics of Islamic securities. It is
estimated that over the last five years there were about 50 such placements securities
worth more than 20 billion pounds. Information leaked to the press that the
British authorities in conjunction with one of the major oil companies will
launch a special program to support small and medium-sized businesses in the
Middle East, as well as a program for retraining financiers of Islamic
countries in British universities. Overall, London demonstrated enviable
activity in order to strengthen the already weighty potential City as a leading
international financial center, in particular by attracting capital from China
and Islamic states.
Model of economic activity is taking into
account the principles of Sharia. It served by the forum, as an example of the
"moral" of doing business and the inseparability of the real economy
from its financial dimension. The burden official view of London - Islamic
economy is likely to have a healing effect on the global economic financial
system. In turn, the integration of Islamic economic models in the matrix of
modern global economic ties, according to some experts, could help the
interaction of the financial resources of Western economies in the Islamic
countries, and to give thus to global economic growth and stability of the
required quality.
However, in this regard, there is a whole
series of questions "non-economic" properties, but rather a
socio-political tinge, and in such areas as the existing traditions and
culture. These themes are particularly sensitive in the context of promoting
Islamic finance in countries where Muslims are a minority. However, judging by
the determination with which the UK Government headed by Prime Minister
supports the new trend, these, too "thin" and sensitive issues, a
little embarrassed London, which is going to create another economic lever of
influence in the Muslim world, no doubt for the benefit of the UK.
It should also be noted that on the way to
the introduction of Islamic financial institutions, the UK government will need
to address many issues. In particular, for example, is quite a serious topic -
the existence of Sharia Supervisory Board as the sole authoritative body to
advise the Central Bank on Islamic banking and insurance. This authority should
deal with the control of the Shariah Council for Islamic financial
institutions, as well as to monitor their activities and to perform judicial
functions in arbitration disputes relating to matters of Sharia between Islamic
banks and financial institutions. In addition, it will have to reckon with the
fact that the Islamic bank to finance prohibited activity contrary to the
principles of Sharia.
Sharia prescribes funding only real
productive activity. The concept of Islamic finance, which prohibits the
payment of interest and pure monetary speculation, hard to take root in Europe
, and certainly before the British Government will face the task of integrating
the system on soil already formed the British -developed financial system. In
addition, it should be remembered that the fundamental sources of Islam and
Islamic law ( Sharia ) Quran and the Sunnah of the Prophet set the standards to
be followed by every devout Muslim. In economic relations, this prohibition of
riba ( usury ), i.e. participate in transactions related to charging and
payment of interest, the prohibition gharar - increased risks and uncertainties
in the transaction; ban maysir - income as a result of chance, the prohibition
of business related trade "unclean" from the point of view of Islam,
things such as pork, alcohol, tobacco, weapons, drugs. In accordance with
Sharia law, a person - only Allah attorney, and cannot be the real owner of the
goods belonging to him, so is not entitled to receive benefits as he pleases.
Managing their financial affairs of man
must be guided by the rules and restrictions that are installed at major
sources of Shariah. The purpose of Islamic banks is not only for profit, but
also to satisfy moral obligations. Therefore, the economic behavior of Muslims
due to the principles that makes Islamic banks and their clients to build
relations on the basis of religion, rather than monetary reward. In addition,
the problem lies in the fact that because the Islamic banking institutions
appeared not so long ago and so even in Muslim countries still lack lawmaking
framework clearly defines the activities of Islamic financial institutions.
How will it work on a highly developed
financial market in London, where the main evaluation of the effectiveness of
any financial institution - the profit? Furthermore, the activities of Islamic
banks, aimed at supporting the development and promotion of Islamic values and not the fact
that it will certainly comply with national interests of European countries
where Islamic banks will work.
Literature:
1. http://www.business-gazeta.ru/
3. http://www.gazeta.ru/business/