Riyadh, Asharq Al-Awsat- A number of experts and officials of Islamic banks and financial institutions have confirmed that Islamic banks have not been affected by the global financial crisis, and that any effects would be limited due to the nature of Islamic banking. Experts told Asharq Al-Awsat that Islamic banks are untouched by the current crisis due to the nature of Islamic banking especially that it does not deal in debt trading and distances itself from market speculation that takes place in European and American banks.
CEO of the Bahraini-based Albaraka Banking Group Adnan Ahmed Yousif stated that Islamic banks do not rely on bonds or stocks, and are not involved in the buying and selling of debt unlike most conventional European and US banks. He noted that Islamic banking is distinguished by the fact that it is prohibited from buying debts under Islamic Sharia law; therefore, Islamic banks are safe from the effects of the global financial crisis.
Adnan Yousif, who also chairs the Union of Arab Banks, reiterated that Islamic banks are largely sheltered from this crisis; however, it is inevitable that they will be affected to a certain degree as they are part of the wider global financial system and consequently will be affected by all global financial dealings, even if only in an indirect manner.
Yousif predicted that this global crisis will continue for two years or more. He argued that Islamic banks have become a safe haven for secured liquidity and are in a good position. The success of Islamic banking will lead to serious consideration of Islamic economics, which continues to realize numerous achievements, as a viable alternative to the current global economic system which continues to be hit by these crises.
Adnan Yousif further explained that the expected losses to be incurred by a number of banks in the Gulf region and Arab countries will not be declared, as major banks and investment funds, and sovereign wealth funds in particular, have investments in Europe and America.
General Manager and board member of the Arab Finance House Dr. Fouad Nadim Matraji explained that Islamic banks have not been affected by the mortgage crisis that afflicted the international financial markets and that they are largely immune against such crisis thanks to inherent factors within Islamic banking. The most important of these factors is the prohibition of debt trading, taking precautions against money laundering, as well as the official and professional restraints upon which banks are based such as caution against embarking upon projects that entail financial difficulties and risks.
Dr. Matraji explained that Islamic banks have several alternatives [to conventional banking products] such as Ijarah Bitamlik [a renting contract that ends in ownership], Murabaha etc. which demonstrate that Islamic banking is a sound and systematic alternative banking system that others should take as an example. Islamic finance is expected to increase on the international level and its number of customers is also expected to rise as they search for an alternative [banking system].
Matraji added that Islamic banking is distinguished by a commitment to uphold integrity and its distancing from risky projects. He pointed out that this crisis has caused significant global inflation in world banks because they buy debts and enlarge accounts without tangible transactions taking place or without brokers being aware of them, highlighting that Islamic banks do not engage in such ventures.
Matraji added that only the profits of Islamic banks could be affected by the international financial crisis, but not the capital, which is protected by Islamic banking unlike conventional banks.
Dr. Tawfiq Bin Abdul Aziz al Swailem, Chairman of the Gulf Bureau for Research and Economic Consultation, said that Islamic banking is a part of the global economy and can be affected either negatively or positively by it but Islamic banks are not major investors in conventional western banks so as to be affected by such crises.
Dr. al Swailem added that the impact [that the crisis has had] on some markets in the Gulf and the surrounding areas, is psychological and is caused by media coverage over the past few days.
Relying on over 25 years of experience in the Saudi financial sector, Dr. al Swailem expects Islamic banks to end the year successfully with the forthcoming announcements of their budgets because of the clarity of contracts and Islamic banking projects that are spread throughout the countries of the Islamic world.
The international financial crisis began over a year ago, and has intensified over the past few months. The International Monetary Fund warned that this credit crisis will result in losses of over one trillion dollars and that it may worsen especially that the 150-year-old US financial giant Lehman Brothers declared bankruptcy not to mention the sale of financial services firm Merrill Lynch to the Bank of America. These two news items heralded the worst of this financial crisis so far, and speculation continues as to whether this crisis has reached its peak or if worse is yet to come.