Islamic Finance, it’s a Whole New World
In April 2007, a $600 million sukuk (Islamic bond) was structured and registered in the Cayman Islands. On August 26, 2007, the Khaleej Times reported that the Cayman Islands was introducing Arabic and English language registrations and certificates. According to Arab News, other tax havens have also been courting the Islamic finance market: Bahamas, British Virgin Islands, Guernsey, Isle of Man, Jersey and Luxembourg, to name but a few. In fact, the Jersey law firm of Voisin pioneered Islamic securitization deals with the Caravan I Sukuk.
Meanwhile, the UK is trying its level best to establish itself as the premier Western center for Islamic finance. On January 30, 2007, Economic Secretary Ed Balls announced that the UK government intends to introduce legislation to facilitate the UK issuance and trading of sukuk, as well as to provide guidance on musharka (an Islamic financial vehicle used for mortgages) and takaful (Islamic insurance). This announcement laid the groundwork for a major public and private sector high level Islamic Finance Summit on April 16, 2007. HSBC stands at the head of Western financial institutions offering Sharia’ah compliant mortgages and pension funds. In addition, in the UK, Standard Life also offers pension funds, Lloyds TSB offers shariah business accounts, and Children’s Mutual offers a Shari’ah compliant Child Trust Fund.
Saleh Kamel, President of Dallah Al-Baraka Group, believes that there are now over 400 Islamic financial institutions in 75 countries, with total assets over $500 billion, growing at a rate of 15% per annum. Not bad when one considers that in 1975, there was just one Islamic financial institution in the world. Mark Hanson, CEO of Global Banking Corporation, estimates that Islamic banking is growing at a rate of between 35-40% per annum. In the space of just five years, the sukuk market has grown to $50 billion, at a rate of 40% per annum. With the project finance market in the GCC estimated at $1 trillion, an increasing number of Middle East companies are looking to Shari’ah compliant financial instruments to meet their needs. Thus, Islamic finance has become increasingly attractive to Western countries and financial institutions.
The pioneer and driving force behind modern Islamic finance is Saleh Kamel. However, he is now calling for Islamic finance to move from being Shari’ah compliant to that of being Shari’ah based. At the heart of his concern, is a belief that Islamic finance has adopted in part Western models, rather than the purely shari’ah model. Sheik Kamel sees zakat as key to the transformation from Shari’ah compliant to Shari’ah based financial products.
Accordingly, in October 2006, Sheik Kamel called for the establishment of a single worldwide organization to collect and distribute zakat, both Zakat Al-Fitr (one of the five pillars of Islam) and Zakat Al-Mal (on wealth), from the 20,000 or so organizations that are currently involved in its collection. It is to be noted that the Zakat Al-Fitr which is collected at the end of Ramadan is estimated to be more than $2 billion. Significantly, the funds will be distributed under the supervision of a committee comprising experts from the IDB, ICCI and the OIC. On November 28, 2006, the OIC approved Kamel’s proposal. On December 4, 2006, it was announced that the International Commission for Zakat would be based in Malaysia. On April 30, 2007, 20 OIC nations, including Saudi Arabia, endorsed the International Commission for Zakat.
It is no coincidence that the most enthusiastic supporter of the new International Commission for Zakat is Sheik Yusuf Al-Qaradawi, Chairman of the World Forum for Muslim Scholars, a supporter of Hamas and the Palestinian intifada. The Quranic basis for his position is to be found in the admonition that zakat may be given to help those who are confined for the cause of Allah (fisabillillah) (Sura 2:273). Dr. Ajeel Jassem al-Nashami, the Secretary General of the International Organization for Zakat in Kuwait, in his interpretation of Sura 9:60, observes that of the eight forms of zakat that are enumerated, four of them are designated for jihad, and the other four for the help of the needy. For Qaradawi, Islamic charities who provide support for the families of suicide bombers, represent the practical face of financial jihad.
On June 20, 2007, Saleh Kamel called for a streamlining of the Shari’ah council system which makes rulings (fatwas) on whether a financial investment or asset is according to Shari’ah law illicit (haram) or not. He proposed a central Shariah Council for issuing fatwas. Presently, Islamic financial institutions are encouraged to have their own duly constituted Shari’ah boards that make fatwas, but not all do. The goal is standardization, in order to create uniformity in fatwas. Under Shari’ah law, the charging of interest (riba) (Sura 2:275-280), investment in risky (jahala) ventures or uncertain (gharar) arrangements (Sura 2:282), gambling or games of chance (maisir) (Sura 5:91), alcohol (Sura 2:219), pornography (Sura 17:32) are deemed haram, and as such, are prohibited and must be removed from among the investments or assets of an Islamic financial institution. That being said, in order to purify the remaining investment or asset portfolio, the earnings from haram activities are to be applied as zakat. With respect to lawful investments and assets, they are subject to Zakat Al-Mal. Whilst, standardization is a laudable goal, it should not be lost on anyone that most probably the underlying school of jurisprudential interpretation (fiqh) will be hanbali. In other words, the new international shari’ah council will be wholly wahhabist, and therefore, Islamic fundamentalist.