Shahin Shayan Arani during his interview with The Brunei Times yesterday. Picture:BT/Yusri Adanan.
Tuesday, November 2, 2010
BRUNEI should put in place the necessary and relevant incentives and frameworks to ensure its Islamic finance industry grows.
Once it does, only then will it have the ability to seriously compete with the conventional banks in the capital and globally, said Shahin Shayan Arani, chairman of the board of financial engineering company Hoda International.
"First, in your country, or in any country for that matter, there has to be that driving force that we want to have an Islamic financial system in place because of our beliefs, our principles, and we believe in lots of (rules) as it's portrayed," said Shahin in an interview with The Brunei Times.
As a new venture in the financial world, he said, the installation of an Islamic financial system either in a single institution or throughout all, "the development of Islamic banking in any country, based in the experience that I have, has been mostly driven by the belief of that country in terms of wanting to implement Islamic banking.
"Usually, you have to keep in mind that Islamic banking is a new venture, it's not something that existed 200 or 300 years ago. But (conventional) banking businesses started at least 300 or 400 years ago (while) Islamic banking is only maybe 40 or 50 years old."
While the banking business was developed, and is still developing, Islamic banking was a concept that more or less got integrated into this grand scheme of banking business development, with "the intention of making sure that you get rid of the non-Islamic practices including Riba, or Karara as they say, or any kind of gambling nature to the traditional banking businesses. So more or less, Islamic banking came into the picture to, let's say, 'purify', the existing development of the banking business."
Asked if that financial system could co-exist with conventional banking, Shahin said that "that's the driving force. Now, if that engine or that driving force is there, then you will start thinking in terms of how we should structure our system to have proper Islamic banking developed".
Many countries have decided they want to have this dual banking system meaning, he said, adding that some decided to continue with the current banking practices which are non-Islamic because "they kind of didn't want to 'shake the system' too much. Plus, they decided to develop an Islamic banking industry parallel to the current banking business. In other words, they decided if Islamic banking practices work, it should compete with the non-Islamic bank(s)".
The question behind this system said Shahin, was if Islamic banking, or Islamic finance in the general sense, has anything to contribute in terms of value, be it spiritual value even or Shari'ah values.
"It has to be able to compete through its value compared to the current non-Islamic products. Malaysia followed this principle, many other countries follow this same principle, this model. There are some other countries that approached this from a revolutionary point of view like Iran. They said, 'Look, we don't want to have anything to do with non-Islamic financial systems. Everything has to be Islamic.' Pakistan also uses that model, Sudan uses that model to a certain degree."
These methods are more 'revolutionary' he said, which shake up the current financial system.
"That's kind of more of a shake-up model meaning they just shook up everything (and) decided they wanted to get rid of any kind of non-Islamic financial practices."
It is a lot more difficult to apply, he observed, as it creates more stress on the system. Shahin used the example of post-revolution Iran, when an Islamic financial system was implemented across all financial institutions and companies.
"After the revolution, Iran basically used that model to change everything. It created a lot of difficulty initially for the system to absorb and understand what it wants to do. Now, it's kind of finding its character, it's kind of reaching its equilibrium.of stability. Still, there are some glitches, some problems that need to be resolved but it's finding its way. Pakistan as I said, applied that model (and) they had some difficulties and they went back to the dual system model and now they're kind of trying to see if they can go back to the one single model."
In Brunei's case, said Shahin, the existence of an Islamic banking system in parallel with the current conventional banking system is smoother but he notes that developments need to happen to ensure it survives against traditional systems.
"I would say you're taking a more smoother approach for development, which is fine, but I would strongly suggest that Brunei has to develop the Islamic banking or Islamic finance industry; provide enough incentives for this baby to grow and I'm very certain that if you develop the Islamic finance industry in Brunei, it has a lot of value. It can show itself, it can prove itself and it can start competing with the non-Islamic financial institutions in Brunei."
He explained that similar to any new venture in any country, you have to provide proper tax and regulatory incentives.
"Any new venture, if there is any push from the top officials for it to get developed, you have to create the environment for it so that it can grow and have enough critical mass to compete with other ventures out there."
Shahin said that difference is that the Islamic finance business is based on risk return participation structure.
"Let's say for a bank or investment company that's Islamic, the backbone or the engine for its activity is based on participation and contracts. A depositor in an Islamic bank is not really a depositor in terms of the risk-return or dynamics in terms of non-Islamic banks. By right, it's really a partner if that's what you want to call it."
Banks, he said, act as a trustee or a mean so the bank gets money from you and the bank has this trustee or fiduciary responsibility on your behalf to grow and allocate these funds that it has gotten from you, in various types of investments out there and for this activity it gets a fee.
"So you as a depositor in an Islamic bank, are really partnering with the other side of the balance sheet of the bag, which is the asset side."
The Islamic bank's role is thus to tie consumer and financial institution together he explained, "so whatever happens on the real side of the business, on the asset side of the bag, affects you as a depositor. Having this nature, which is totally this kind of structure or dynamism, is totally different from the traditional bank".
The Brunei Times
Source : http://www.bt.com.bn/business-national/2010/11/02/incentives-islamic-finance - Nov 2, 2010
Once it does, only then will it have the ability to seriously compete with the conventional banks in the capital and globally, said Shahin Shayan Arani, chairman of the board of financial engineering company Hoda International.
"First, in your country, or in any country for that matter, there has to be that driving force that we want to have an Islamic financial system in place because of our beliefs, our principles, and we believe in lots of (rules) as it's portrayed," said Shahin in an interview with The Brunei Times.
As a new venture in the financial world, he said, the installation of an Islamic financial system either in a single institution or throughout all, "the development of Islamic banking in any country, based in the experience that I have, has been mostly driven by the belief of that country in terms of wanting to implement Islamic banking.
"Usually, you have to keep in mind that Islamic banking is a new venture, it's not something that existed 200 or 300 years ago. But (conventional) banking businesses started at least 300 or 400 years ago (while) Islamic banking is only maybe 40 or 50 years old."
While the banking business was developed, and is still developing, Islamic banking was a concept that more or less got integrated into this grand scheme of banking business development, with "the intention of making sure that you get rid of the non-Islamic practices including Riba, or Karara as they say, or any kind of gambling nature to the traditional banking businesses. So more or less, Islamic banking came into the picture to, let's say, 'purify', the existing development of the banking business."
Asked if that financial system could co-exist with conventional banking, Shahin said that "that's the driving force. Now, if that engine or that driving force is there, then you will start thinking in terms of how we should structure our system to have proper Islamic banking developed".
Many countries have decided they want to have this dual banking system meaning, he said, adding that some decided to continue with the current banking practices which are non-Islamic because "they kind of didn't want to 'shake the system' too much. Plus, they decided to develop an Islamic banking industry parallel to the current banking business. In other words, they decided if Islamic banking practices work, it should compete with the non-Islamic bank(s)".
The question behind this system said Shahin, was if Islamic banking, or Islamic finance in the general sense, has anything to contribute in terms of value, be it spiritual value even or Shari'ah values.
"It has to be able to compete through its value compared to the current non-Islamic products. Malaysia followed this principle, many other countries follow this same principle, this model. There are some other countries that approached this from a revolutionary point of view like Iran. They said, 'Look, we don't want to have anything to do with non-Islamic financial systems. Everything has to be Islamic.' Pakistan also uses that model, Sudan uses that model to a certain degree."
These methods are more 'revolutionary' he said, which shake up the current financial system.
"That's kind of more of a shake-up model meaning they just shook up everything (and) decided they wanted to get rid of any kind of non-Islamic financial practices."
It is a lot more difficult to apply, he observed, as it creates more stress on the system. Shahin used the example of post-revolution Iran, when an Islamic financial system was implemented across all financial institutions and companies.
"After the revolution, Iran basically used that model to change everything. It created a lot of difficulty initially for the system to absorb and understand what it wants to do. Now, it's kind of finding its character, it's kind of reaching its equilibrium.of stability. Still, there are some glitches, some problems that need to be resolved but it's finding its way. Pakistan as I said, applied that model (and) they had some difficulties and they went back to the dual system model and now they're kind of trying to see if they can go back to the one single model."
In Brunei's case, said Shahin, the existence of an Islamic banking system in parallel with the current conventional banking system is smoother but he notes that developments need to happen to ensure it survives against traditional systems.
"I would say you're taking a more smoother approach for development, which is fine, but I would strongly suggest that Brunei has to develop the Islamic banking or Islamic finance industry; provide enough incentives for this baby to grow and I'm very certain that if you develop the Islamic finance industry in Brunei, it has a lot of value. It can show itself, it can prove itself and it can start competing with the non-Islamic financial institutions in Brunei."
He explained that similar to any new venture in any country, you have to provide proper tax and regulatory incentives.
"Any new venture, if there is any push from the top officials for it to get developed, you have to create the environment for it so that it can grow and have enough critical mass to compete with other ventures out there."
Shahin said that difference is that the Islamic finance business is based on risk return participation structure.
"Let's say for a bank or investment company that's Islamic, the backbone or the engine for its activity is based on participation and contracts. A depositor in an Islamic bank is not really a depositor in terms of the risk-return or dynamics in terms of non-Islamic banks. By right, it's really a partner if that's what you want to call it."
Banks, he said, act as a trustee or a mean so the bank gets money from you and the bank has this trustee or fiduciary responsibility on your behalf to grow and allocate these funds that it has gotten from you, in various types of investments out there and for this activity it gets a fee.
"So you as a depositor in an Islamic bank, are really partnering with the other side of the balance sheet of the bag, which is the asset side."
The Islamic bank's role is thus to tie consumer and financial institution together he explained, "so whatever happens on the real side of the business, on the asset side of the bag, affects you as a depositor. Having this nature, which is totally this kind of structure or dynamism, is totally different from the traditional bank".
The Brunei Times
Source : http://www.bt.com.bn/business-national/2010/11/02/incentives-islamic-finance - Nov 2, 2010
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