Dealing with the more technical aspects or financial aspects of Islamic financial systems, he said, "I usually uses the three very important religious principles that you need to have in any Islamic financial system which is, excluding 'riba', excluding 'hawalah', excluding 'maysar', meaning like if you want to compare these three religious concepts to non-Islamic financial systems it means you have to exclude non-risk participation return principles, you have to emphasise risk-return participation which is more or less the same as excluding 'riba'.
In the context of hawalah, Shahin said that "this is more like creating proper transparencies and features that have a non-asymmetric information flow", which means making sure the two parties have the proper information for any transaction. "If I have extra information compared to you, he said, Islamic-ally speaking, that contract is not viable meaning you cannot use inside information for that matter, for trade." That, he said, is considered an injustice for trading in trade, which is excellent for consumers.
He praised this feature of Islamic banking, comparing it to the way non-Islamic financial regulations emphasise transparency and efficiency in trade. For the concept of maysar, Shahin said, "(it) is kind of (about) the gambling features in trade, a highly speculative mode of trade is not acceptable in Islam meaning if I buy a share now and sell it two hours later, that is not a trade or kind of transaction that is never acceptable". The emphasis in Islamic banking is thus on value and value creation. "What kind of value are you creating if you buy an IBM share now and sell it off two hours later? You're just moving on this wave which is not a very, economically speaking, justifiable venture," he said.
Shahin explained that sukuk is actually just an Islamic financial instrument emphasising that risk-return participation feature that is compatible to securitisation features. "In the non-Islamic world, you have securitisation processes, meaning you try to create an instrument or a security backed by a pool of investments or receivables. In Islamic financial systems, when you try to apply the same model, you have to create the same changes because of the emphasis that Islamic financial systems have on different asset classes and the way you can transfer ownership and so on. That's where sukuk comes in," he said.
Sukuk, he added, is a parallel Islamic system to non-Islamic securitisation processes. "I think that's an asset class that has created a lot of value and stability. It has its own little problems, but that's because it's developing. It's something we could really use as a perfect example how Islamic financial instruments can create value that non-Islamic financial instruments have not been able to." He said sukuk can enhance or help liquidity problems, or get rid of liquidity problems. It can also help to enhance or help the liquidity of Islamic financial assets that exists in Islamic banks.
Source : http://www.bt.com.bn/business-national/2010/11/03/solving-liquidity-problems-through-sukuk-structures - Nov 3, 2010
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