Malaysia PM called on Islamic banking to work on clarifying and resolving conflicts in interpretation over what products are allowed under religious laws.
The global economic crisis presents an opportunity for Islamic banking to show it is a viable alternative to conventional finance, Malaysia’s premier said according to reports Wednesday.
Prime Minister Abdullah Ahmad Badawi said the meltdown showed the need for laws enshrined in Islamic banking, which prohibits speculation and high levels of debt, and which has so far been relatively unscathed by the credit crunch.
"These ethical and moral safeguards are missing in the conventional system," Abdullah said in a speech, adding that the crisis was caused by trade in loans which few truly understood.
"In reality these repackaged sub-prime loans were nothing more than artful works of deception that fed the speculative excesses and hubris in the financial markets," he said at the launch of an Islamic law research academy.
However, he called on Islamic banking — a booming 1.0 trillion dollar global industry — to work on clarifying and resolving conflicts in interpretation over what products are allowed under religious laws.
"The Islamic finance community should not be complacent or unduly proud. We must continue to critically evaluate ourselves," he said according to the state Bernama news agency.
"For instance, have we truly established an alternative system or are we still very much mimicking the established conventional system?"
Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling, so highly complex instruments such as derivatives and other creative accounting practices are banned.
There have been calls for the conventional banking industry to take a leaf out of the book of Islamic finance, which also shuns investments in gaming, alcohol and pornography in favour of ethical investments.
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