Dubai plays host to the second leg of the International Waqf & Blockchain Forum (IWBF 2018) – the first city in the middle east to do so. IWBF 2018 brings together the best minds to showcase new opportunities and possibilities available through the use of blockchain technology to help in the development and sustainability of Waqf.
Finance is described as Islamic when it complies with sharia, a set of moral laws laid out in the Qur’an and writings about the prophet. Sharia forbids making money from money which begs the immediate question; how can banks that don’t charge interest survive? It’s a question worth answering, not least because academics have argued that the financial crisis wouldn’t have happened if the global economy was regulated by Islamic finance.
How it works
Islamic finance is all about sharing risk between financial institutions and the individuals that use them. To do that, the two parties are tied into a longer-term relationship with each other that is supposed to shift incentives and avoid cut and run financial deals.
An ICD (Islamic Corp for the Development of the Private Sector)-Thomson Reuters report on Islamic finance shows that as at the end of last year, total assets were slightly above US$2 trillion (RM7.74 trillion).
So, for example, sharia-compliant mortgages mean that the bank and the borrower share the risks of repayment rather than charging any form of interest. The sharia standards cover areas including indices, liquidity tools, capital protection and agency agreements, and follow three other AAOIFI standards adopted in February.
An Islamic Financial Services Board study forecast that total Islamic finance assets are expected to grow to US$3.5 trillion within the next four years to 2021.
Since it’s Islamic, that also means that financial trading is off-limits for things that are forbidden even if no interest is charged – so investments can’t be made in alcohol, tobacco, non-halal meat products such as pork, pornography or gambling companies. So, if there’s no interest and gambling on high-risk ventures is a no-no, how can Islamic banks be profitable? Hilary Osborne explains:
You don’t have to be Muslim to use Islamic financial services – a fact which has stimulated further interest in the sector. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.
Islamic Finance In numbers
275: The number of Islamic financial institutions in the world.
75: The number of countries where they have a presence.
US$1.357 trillion: The value of the global Islamic finance services industry by the end of 2011.
US$4 trillion: The projected value of the global Islamic finance services industry by 2020.