Malaysia Pushes Islamic Gold Dinar and Islamic Banking

Friday, June 17, 2005
Malaysia Pushes Islamic Gold Dinar and Islamic Banking

Malaysia is pushing hard to convince member countries of the Organisation of Islamic Countries (OIC) to introduce an Islamic Gold Dinar for bilateral trade and in order to reduce their dependence on the US dollar, the Malaysian news agency bernama.com reported on Thursday.
Second finance minister Tan Sri Nor Mohamed Yakcop said he had been talking to a number of OIC members to start using the gold dinar for trade. "This is rather a complex matter and we have to take one step at a time to convince the other OIC countries on a bilateral basis to use the dinar. We will work hard on this because we feel that it is a noble idea," he said. Currently 56 countries are associated in the OIC.
Malaysia will raise the matter of using the gold dinar at the annual meeting of the Islamic Development Bank (IDB) in Putrajaya, Malaysia, next week. Nor Mohamed said the meeting presented a golden opportunity to think of ways to enhance cooperation between Muslim countries, especially in Islamic banking.
"We have much experience in Islamic banking and we can discuss and provide training and advice to the other countries (which want to embark on it). Only Malaysia has a dual system of conventional and Islamic banking, and both systems have advanced, adequate and sophisticated infrastructures," he said.
Nor Mohamed said Sudan and Iran both have Islamic banking while the other countries have Islamic banking "on the fringe and not in the mainstream" and there are others which do not have Islamic banking at all.
When viewed from the trade perspective between Muslim countries, he said intra-trade between them only accounted for 12 percent of their total trade transactions.
Nor Mohamed said total trade of Islamic countries only accounted for seven percent of global trade although 15 percent of the world's population are Muslims, "although we have 60 percent of the world's natural resources, our trade is still small."
Facts on Islamic Banking
Islamic banking's history dates only 38 years back. Western banking got on its feet 400 years ago. According to the Koran charging of interest is forbidden.
There is a growing number of workshops held around the globe that explain how to circumvent this, for instance by sale and lease-back transactions of assets like real estate.
The new research has also developed ways to issue Islamic bonds. They basically work the way of allother bonds, but interest is called profit. But they have fancy exotic names. So far mudarabah or muqaradah bonds, musharakah bonds, Ijarah bonds, istisna' bonds, salam and murabahah bonds have been successfully issued. Check out this paper (pdf) for more information.
Islamic investment funds have to follow the Sharia law. Sharia scholars are in agreement that investment in stocks are allowed, provided they meet certain criteria designed to minimize un-Islamic activities (since eliminating them would be impossible in most cases.)
The first recognized Islamic bank was Dubai Islamic Bank which opened its doors in 1975. The total worldwide assets reached 260 billion in 2004. There are now 267 Islamic banks and the annual growth rate in assets was 23.5 percent for the last 5 years, the newsletter Islamic Finance reported.
According to Failaka International, the leading firm in Islamic fund research and analysis, Islamic banking accounts for 30 percent of deposits in Kuwait, 20 percent in Saudi Arabia and 10 percent in Malaysia.


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