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Islamic banking and finance; just another type of banking

At a recent Mazars seminar in the City the changes in accounting and tax treatment in the UK and France were presented to an expert audience but it was the alternative virtues of Islamic banking as opposed to Western banking that stood out.

The presentation by Tarek el Diwany, an ex Bond Trader (before he converted to become a Muslim) provided a clear differential to the western structure and style of banking. Everyone knows that interest bearing loans and products that are tainted by interest are outside the laws of Islam but after the financial crisis and the breakdown of western finance should there now be a fresh look at the values offered by Islamic banking?

There has been an effort by the west to try and find ways to integrate with Islamic banks through agents or workarounds that maintain Islamic laws. This has been partially successful. However, with the economic world in confusion and strife, is it about time that the western world viewed Islamic banking not through its religious focus but simply as an alternative method of finance.

How many people would prefer their mortgage to not be interest bearing but through a more definitive structure of a partnership loan that is eventually repaid and ownership changed. The rental of a house where the ownership is split between the lender and the renter has far more stability and certainty than a mortgage governed by interest rate movements. 

With the housing market still fragile and banks struggling to offer the size of mortgages needed as in previous times, the attraction to Islamic Banking should grow. The problem is that for many people the term Islamic conjures up the religious side rather than the pragmatic style of financing.

It was estimated that in France there are between 6 and 7 million Muslims and in the UK the figure is lower but growing. If all Muslims moved to Islamic finance and banks the establishment of this business will begin to impact western banks.

What if Islamic Banks began to market aggressively to non Muslims? 

It is obvious to me that in today's world people need to look at banking alternatives and in Islamic finance there is a very clear alternative. Can the population overcome any prejudice or any misunderstanding; the answer may be in the ability of Islamic banks to market effectively. Who can afford not to give this alternative some thought?

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Comments: (2)

Dave Kershaw
Dave Kershaw - Ulster Bank - Belfast 02 November, 2009, 09:13Be the first to give this comment the thumbs up 0 likes

I read that Islamic banking is popular with non-muslims in areas where there is more than one religion (Malaysia, I think). If a bank here markets Islamic-compliant products as "ethical", rather than overtly "Islamic", they could capture the green market - as well as other religious groups concerned with ursury.

Islamic banking's advatantages are security and certainty... but disadvantages are the rates. Essentially, it boils down to whether you are up for a gamble or not!

A Finextra member
A Finextra member 02 November, 2009, 10:04Be the first to give this comment the thumbs up 0 likes

Thanks for the comment and i concurr with your view. I think people should look at the alternative style of finance and almost forget the word Islamic. For some people this style of banking would fit their financial profile. I assume the rates your talking of is not interest but the fee charged