While the global economic system rattled by the US subprime mortgage crisis, a distinguished speaker has said that ‘Islamic finance model’ is the only answer to this persistent economic turmoil.
Dr Mohammed Mahmud Awan, a leading scholar and Dean at Malaysia-based International Center for Education in Islamic Finance (INCEIF), told the participants of a conference in Manama that the current global economic crisis has opened many windows of opportunities for Islamic finance. “This crisis is seen as a big opportunity for Islamic finance as it has the capacity and capability to bring stability to the market.”
The current global crisis which caused colossal financial loses running in billions of dollars, he said, would have not occurred if the Islamic principles regarding collateralized debt obligations (CDOs) were in vogue in the international financial market. “Islamic bonds, carrying unique structure features, cannot fall foul of a crisis such as subprime mortgage crisis. Subprime mortgages are backed by dubiously rated collateralized debt packages which subsequently precipitated a global credit crunch.”
Awan, who was a keynote speaker at the two-day conference on globalization organized by the University of Bahrain recently, said that it was the right time for Islamic banking industry to present solutions to the global economic community in the wake of the crisis. The conference was attended by over 300 delegates representing various countries who share their expertise with a specific thrust globalization and opportunities and challenges.
Awan said: “Subprime mortgages are backed by dubiously rated collateralized debt packages which subsequently precipitated a global credit crunch”. He added: “A crisis such as the mortgage one would technically be unthinkable in the Islamic capital markets sector because it would be against Shariah principles to sell a debt against a debt.” There is a very simple rule in Islamic trade, he said, which clearly says that you can’t sell unless you posses. He said: “In the present crisis we have seen trillions of dollars trading without backing of assets. If such transactions followed the Islamic finance model it would have easily prevented the current economic crisis.”
Mahmood Rafique, Arab News 24 April 2008