KUALA LUMPUR: Islamic finance has made plenty of money for bankers and lawyers but has fallen short of the goal of spawning a new breed of Muslim entrepreneurs, experts on Islamic finance said on Wednesday.
Islamic finance, which shuns interest and speculation, is one of the fastest-growing areas of international banking, promoted by mostly poor Muslim nations that hope it will create an efficient pool of capital to spark new small businesses into life.
'The reality is that most Islamic finance is commercial finance, it’s on a larger scale, it’s for people that would bank anyway, rather than for the un-banked,' Rodney Wilson, an Islamic finance specialist at Britain’s Durham University, told Reuters.
The world’s largest grouping of Muslim nations, the 57-member Organisation of the Islamic Conference (OIC), sees Islamic finance as a way to stamp out poverty among its 1.8 billion people and close the gaps between members who range from wealthy Saudi Arabia and Kuwait to poor African states such as Sudan.
Islamic finance calls for greater risk-sharing among banks and debtors than conventional banking, and advocates had hoped it would speed business development by getting banks to focus on the potential of the projects funded rather than the collateral on offer, he added. But the idea of sharing profits – as well as losses – as the basic instrument of financing activities had never really taken off, Nienhaus, president of Germany’s Marburg University and a consultant to Malaysia on Islamic finance, told Reuters.
Wilson said banks had found it easier to evolve commercial banking products based on Islamic principles rather than products directed at small borrowers. 'If you think of things like microfinance and so on, it has not really taken off in terms of sharia-compliant micro-finance, because we have got limited microfinance experiences around the world,' he said.
The Islamic financial system, founded about 30 years ago, has banking assets of more than $300 billion, and the Malaysian government estimates that they are growing between 10 per cent and 15 per cent a year. Islamic banking takes a more integrated, holistic approach to the needs of investors than conventional banking, but has temporarily had to adopt some features from its competitor, Ishrat Husain, a Pakistani central banker, said.