www.4-traders.com - Some fundamental principles - governing such things as
rigorous risk management or good corporate governance -
held good for both the Islamic financial system and its
western counterpart, the BaFin President continued. They
helped to ensure a safe and properly functioning
international financial system.(source)
Takaful: The Islamic insurance model
There are other rules and regulations that are a speciality
of Islamic finance, though. For instance, gambling,
speculation and receiving interest are strictly forbidden
for Muslims. In addition, a real transaction must underlie
every financial transaction. "The principle of insurance
is, however, based fundamentally on uncertainty, which in
Sharia-compliant contracts is permitted only to a certain,
unavoidable degree. Today, the majority of jurists think
that this degree of uncertainty is exceeded in conventional
insurance," said Dr Ludwig Stiftlof Munich Re.
For that reason, a special construction, similar to mutual
insurance companies in Germany, was prescribed for takaful.
For instance, policyholders had to share in profits and
losses and, in addition, their funds had to be invested in
accordance with Sharia law.
In reality, takaful insurers were, of course, also
competing with conventional insurance undertakings, Dr
Stiftlcontinued. "The total sum insured
worldwide has increased three-fold since 2005; the number
of takaful companies has increased by a factor of around 30
over the same period. This is inevitably leading to intense
competition," said Dr Stiftl, who was
discussing takaful at the Conference with Dr Philipp
Wakkerbeck(Booz & Co.) and Volker
Henkeof the German Insurance Association
(Gesamtverband der Deutschen
Versicherungswirtschaft).
Islamic banking ahead of sukuks, mutual funds and
participations
While insurance premiums so far account for only a very
small proportion of all Sharia-compliant assets invested,
the lion's share of capital passes through Islamic banking.
"That is followed by sukuks, Islamic mutual funds and
participations," said Ufuk Uyan, CEO of Kuveyt Türk
Participation Bank. "Despite the financial crisis, over the
past decade the market has grown by an average of 20
percent a year." The centre of the Islamic financial
services market was Malaysia, he said; the source was the
Gulf States - and western nations offered attractive
marketing opportunities.
For example, there are more than four million Muslims
living in Germany. "The German banking system is well
suited to Islamic ideas of investment, since it is at heart
risk-averse," Uyan declared during his introductory speech.
BaFin President Könighad earlier made it clear
that the fact that a product had been developed in
accordance with religious principles was no problem in
Germany: "German financial supervision legislation is
neutral regarding philosophies and religions. Every
financial services provider and every product must,
however, satisfy the requirements of the relevant laws -
insofar as they are covered by them. Same business, same
risk, same rules."
However, the Islamic finance industry is still living a
shadow existence here in Germany. No Islamic bank is based
here. Sharia-compliant financial services are mostly niche
products of the big banks. "Although there is a market, for
Islam-compliant investment funds, for example, the
potential is still limited at present," said Dr
Kilian Bälzof Amereller Legal Consultants.
Trading in Islamic products on international exchanges does
not always run smoothly, either, as Dr Jochen
Biedermannof Deutsche Börsereported:
"Generally, Sharia-compliant index products and sukuks
trade only in small volumes, which tends to make markets
rather illiquid."
Islamic financial products go through a screening process
The cost factor also plays a roll in investment decisions.
The majority of Islamic mutual funds have less than a
hundred million US dollars invested in them. Transaction
costs are correspondingly disproportionately high. Charges
are also incurred by the screening process that all
products have to go through. In this process the financial
products are, among other things, examined by a committee
of experts, the so-called Sharia Board, to establish
whether they are Islam-compliant. In addition to indicators
such as a company's debt ratio, ethical and social
exclusion criteria are also scrutinised.
"Islamic banking can make a valuable contribution for
western financial supervision. It has, after all, come
through the financial crisis with no notable damage," said
Peter Baier, head of BaFin's technical
cooperation section. Most derivatives are just as Sharia
non-compliant as short-selling, subprime lending and
futures. These financial instruments are regarded as
potential crisis intensifiers. The price losses suffered by
the banks have not been reflected in Islam-compliant
investments either, since their business models are based
first and foremost on interest and they may not, therefore,
be held in the portfolios of Muslims.
For Zaid el-Mogaddedi, of the Institute for Islamic Banking
and Finance, the fact that the Islamic financial world
brings with it so many unusual features - from
participation constructions to tax matters - is no reason
for pre-judging it without hearing all the evidence:
"Essentially, Islamic banking is just banking. It is open
to anyone interested in ethical and faith-based financial
products," el-Mogaddedi said: "Alongside service-oriented
marketing and competitive products, continuous educational
work to raise public awareness is one of the key factors in
establishing Islamic banking in Europe."Prof. Dr
Matthias Casperof
MünsterUniversity also concurred: "We must
understand Islamic financial products. A black box is not
acceptable."
BaFin's second Islamic Finance Conference gave the 28
speakers and the audience an opportunity to discuss many
interesting matters. As expected, though, the question of
whether the financial crisis could have been prevented by
the rules of Islamic finance remained unanswered.
Source: http://www.4-traders.com/news/BaFin-Federal-Financial-Supervisory-Authority-Islamic-Finance-Not-such-an-alien-world-at-all--14391222/ - June 28, 2012
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