Oversight and transparency: the antidote of Islamic finance to the market crisis
Hong Kong (AsiaNews/Agencies) - With growth of 20% per year, and the prospect of reaching 2 trillion dollars by 2010, the resources of Islamic finance are growing exponentially, and the financial model considered 'halal' according to sharia law is attracting investors from Great Britain to Hong Kong.
The economic crisis sparked by American subprime mortgages has affected many investors, who have distanced themselves from high risk investments like those involving hard-to-measure outstanding debt. In spite of the crisis, the Islamic finance market is taking hold thanks to both the extremely high liquidity guaranteed by petrodollars, and the structure of the Islamic model, which provides for absolute transparency and is capable of offering investors advance warning signals. According to sharia, the agreement between lenders and borrowers must be made on the basis of tangible goods, and the Islamic financial system requires constant and accurate oversight of debt levels.
What happened with Enron (an American energy company) and WorldCom (a telecommunications company) is an indicator of the efficiency of the Islamic system, which is capable of foreseeing crises in companies months before their collapse, and therefore excluding them. Both Enron and WorldCom were part of the Dow Jones Islamic Market (DJIMI) index. "They were excluded from the DJ Islamic market index months before the crash - the high level of debt indicated ineffectiveness of control", says Aznan Hasan, sharia adviser to investment bank Aseambankers Malaysia Berhad. "You don't simply give loans to the client", Hasan added, "allowing him to do whatever he wants, and this can have a lot of impact on credit vigilance".
Analysts, in fact, believe that the success of the Islamic model is mainly due to transparency and oversight, which offer protection for the investor and, not least, in the sharing of responsibility. According to Islamic law, risks and profits are shared by all parties, while any form of economic speculation is in theory prohibited.