Islamic finance still fares better than conventional system

Saturday February 28, 2009- theStar
Islamic finance still fares better than conventional system


ISLAMIC financial markets are not as badly affected by the global financial crisis as their conventional counterpart due to its unique structure, says MAA Takaful Bhd director Dr Zaha Rina Zahari.

“Fortunately, Islamic finance is structured in a more transparent and tangible way. You are not betting on something that is not real (intangible).

“It (Islamic finance) will be affected but probably to a lesser extent than the conventional market,” she said after the launching of Islamic Finance Encyclopaedia by Securities Commission chairman Datuk Seri Zarinah Anwar in Kuala Lumpur yesterday.

Besides, interest rates per se in the conventional market do not affect the Islamic financial system directly, as the Islamic principle is not based on interest rates but the value of assets, says Monash University business school (banking and finance unit) director Prof Bala Shanmugam.

Interest rates, however, have an indirect impact, he adds.

“Islamic finance is based on asset value, and the value of asset changes with interest rates because we live in a conventional system,” he says.

Meanwhile, Zaha Rina says the global Islamic financial services industry has experienced spectacular growth over the last four decades due to greater awareness, understanding of syariah-compliant instruments and demand for an alternative market.

“It is today a US$1 trillion industry and is still growing at an average rate of 15% (per annum),” she says, quoting figures from the Islamic Financial Services Board.

Zaha Rina co-authored Islamic Finance Encyclopaedia with Prof Bala and Monash University business school assistant lecturer Nafis Alam. All three are individuals renowned in their respective fields.

The 600-page publication, which lists a full compilation of Islamic finance terms, structures, scholars and industry practitioners, took two years to compile. About 200 copies have been sold and the authors plan to sell the encyclopaedia overseas.