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July 2009
A group of ten students led by B W Kulas from Poznan University of Economics in Poland called on the IIBI, as part of the London Study Excursion, the university’s prestigious business meeting programme with professionals from London’s financial institutions. The group was received by Mohammad Shafique, the IIBI’s programme development co-ordinator. It included members of the Students’ Scientific Association of Capital Investments, ‘Profit’, which is a part of the department of investments and capital markets at the university. The overall purpose of the visit to London was to broaden the students’ knowledge in local and international capital markets. The excursion was promoted by the Leslaw A. Paga Foundation.
Shafique provided the group with an overview of IIBI’s education, training and publication activities for raising awareness of Islamic economic principles and building a skill base for the Islamic finance sector. He briefed the group on Islamic economic concepts, their applications, and how the modern Islamic finance industry has evolved in the last three decades. He also explained the popular contracts used in Islamic finance transactions and how Islamic financial activity needs to be linked to real activity. He emphasised that while the Shari’ah-compliant industry may play the same role as a financial intermediary in its conventional counterpart, its activities are subject to Shari’ah compliance, which restricts debt creation out of thin air, and its trading. This principle, along with others, such as avoidance of interest (riba), excessive uncertainty (gharar) and gambling (maysir) provides stability to the financial system. Shafique also explained the difference in the concept of time value of money in Islamic and conventional finance. He pointed out that the requirement for all activities to comply with Shari’ah provided an extra layer of regulation, with independent Shari’ah scholars supervising this function. It was the screening criteria used in Islamic investment that could be said to have saved Islamic investors from massive losses and shielded Islamic financial institutions from the effects of the global financial crisis.
After the presentation, there was a lively Q&A session. Students raised various questions, such as how 1400 year old concepts are relevant to modern day financial transactions and whether Islamic banking is for Muslims only. Shafique explained that business principles of profit-and-loss sharing were not invented by Islam. These were there before the advent of this religion, but have been properly endorsed and institutionalised in Islamic commercial law. These principles are universal in nature and very close to the concept of venture capital in modern context. However, due to legal, regulatory and tax reasons these cannot be applied fully by Islamic banks. Islamic finance is an inclusive phenomenon where persons from all faiths or even no faith may work as long as they subscribe to the ethical and moral principles emphasised by Shari’ah that promotes socio-economic justice, such as not undertaking an activity which is harmful to society.
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