Islamic banking, which refuses from interest rate, has become a considerable factor over the last four decades.
There are two viewpoints on its prospects. First, in its development the Islamic banking system will hence promote original segregation of Muslims from western norms and values, by establishing the so-called "financial ghetto".
Second, more and more number of people in the West are dissatisfied: they either skeptically regard the banking service, which they are dealing with, considering it as "exploiter", or unethical. Therefore, Islamic banking with its special business moral gives more positive appearance to world Islamic project.
Many western bankers regard the Islamic finance as accidental, and sometimes even an opportunity for business, but very seldom as threat, similar to that of notorious Islamic extremism. Islamic banking and finance can be regarded as a significant aspect of Islam, contributing in dialogue between the West and Muslims. Islamic institutes of the financial market, including the British Islamic Bank, the European Islamic Investment Bank and Lariba Bank from California have a steady reputation in the western countries. At the same time, the leading Islamic banks of western origin also offer Islamic financial products. Active dialogue between western bankers, who work with similar kind of institutes and experts on Sharia, who can advise what is allowed. This business dialogue is also referred to the field of insurance, where Islamic "takaful" - companies become more active. Their distinguishing peculiarity is that they do not use the interests and payments on depositors and other interested people will not depend on drop or hike in the market.
Crisis and Islamic banking
The business world has been attentively observing the Islamic financial tools after the global financial crisis, because the Islamic world was less inflicted by negative outcomes of the crisis. Perhaps, it is high time to mention about our belonging to the Islamic world and set up actively using principles of Islamic financial organizations in Azerbaijan.
Interests towards business doing on Sharia's rules have increased in Azerbaijan over the past few years. It is not accidental: representatives of Islamic financial institutes are coming to Azerbaijan. Of course, our banks are mostly interested in using Islamic financial tools in work with private sector, but not with the government.
A Global Forum on Islamic finance 'Global stability and the path to integration' by the Islamic Development Bank (IDB) is being held in Baku to spread principles of Islamic banking financing in large
"The Islamic banking system offers an alternative that offers greater stability in financing projects at the international level," Islamic Development Bank (IDB) President Ahmad Mohammad Ali said. "The global financial crisis has led to a great confrontation between developed and developing countries. While considering this issue, we came to the conclusion that the only way out of this situation is to push more intensive development."
Meanwhile, the IDB president suggested conducting financial operations and introducing Islamic financial system regulations based on Sharia law at the highest economic level.
"Our task is to make a more flexible approach to financial issues," Ali said. "We must assess what we have done and develop a future strategy that will ensure the financial sector's stability."
Islamic finance, in his view, provides an advantage to developing financial systems. Ali stressed that developing countries should consider a new financial approach - mixing both the Islamic and traditional financial systems.
"We see that the Islamic financial system has helped us to withstand the global financial crisis," he said, adding that the forum provides an excellent opportunity to spread the principles of Islamic banking across the world.
"I am not calling for a complete transfer to the Islamic system because this would require great effort and coordination, but the the application of certain rules would surely bring sound results. This was confirmed at the G20 meeting," he said.
Azerbaijan does not hurry to transit to Islamic banking
National banking system in Azerbaijan has developed on the basis traditional financial tools. Elman Rustamov, head of the Central Bank of Azerbaijan (CBA), believes that until applying Islamic financial business in the banking sector of Azerbaijan it is necessary to carry out definite studies.
Over 17 years of development of financial and banking system in Azerbaijan on classic and traditional principles the country achieved tremendous success based on other nations' experience. Despite risks, the country's banking sector demonstrated enough stability to global crisis. For instance, the level of capitalization of banking sector has increased, the management potential has been strengthened, and amount of debts has been limited. The country's banking sector increased by 10 times in average in 2003-2008.
Islamic banking has taken a considerable place the developed countries' financial circles over the past 10 years. Namely, from that point of view prospective of harmonizing banking on Sharia principles with the global financial system is obvious.
Nevertheless, researches for application of Islamic banking business in Azerbaijan's financial system may begin no sooner than 2011, because the issues requires serious analysis.
New strategy of developing the country's financial and banking sector is under development and it will seek challenges of crisis. Under the program on further economic development of the country, along with increase of real economy key importance should be attached to the development of financial industry, which should act as a catalyst to promote economy.
Meanwhile, Rustamov does not exclude a possibility of building stability in the country's banking sector based on Islamic mechanism of banking business.
According to Rustamov, at present Islamic banking has brought to the forefront and is being implemented in many countries. In terms of crisis, the assets of Islamic banks have increased by 30 percent over the past year and are expected to reach one trillion dollars by late 2010, which is 1 percent of the total capital of the world. During the crisis attention to the Islamic financing mechanisms has increased.
Using the Islamic methodology in the banking sector, we can achieve further success of economic development in Azerbaijan. This methodology should be developed based on sound principles of the Islamic banking and Azerbaijan has been closely monitors these processes, and when the global context in this plan will be achieved, "we will also use non-traditional banking mechanisms in our country."
Conclusion
Well, Islamic bank is a chance for future, rather a threat and it has future.
According to exerts estimation, Islamic bank is developing with a pace of 10-15 percent a year on average. It is one of dynamically developing fields. There are roughly 300 Islamic banks in over 51 countries with aggregate capital exceeding $700 billion. Major reason for such rapid growth is the considerable inflow of oil revenues in Muslim countries, ensuring much amount of temporarily free liquidity, not directed at financing investment projects within these countries and insensitive development of infrastructure by creating financial centers in Saudi Arabia, Kuwait, Unite Arab Emirates and Malaysia. High liquidity and increase of quality of the financial infrastructure in these countries promote investing in free resources in projects abroad.
The Islamic financial organizations demonstrate higher liquidity during the crisis in connection with some peculiarities and principles, lacking in the work of traditional financial organizations.
One of major principles of Islamic financing is absence of interest rate, ban on money lending (riba). According to Muslim theology scientists, money is not an independent value, they only imply the cost of material assets. So, no recompense should be demanded to use them. Instead of loan, partners of Islamic banks are offered financing based on principles of bank's participation in profit and loss of the project, as well as loan financing. It is important that the relations between sides are based on mutual confidence and high bilateral responsibility.
More likely, Islamic financial and banking system will appear as a special form of capitalism, fully interacting with either west, or Chinese or Russian models of capitalism. This tendency should be hailed.