The document discusses Islamic finance, including its key principles and differences from conventional finance. It provides an overview of the growth of Islamic finance globally and in the UK. The UK government plans to issue the first sovereign Islamic bonds from a non-Muslim country in 2014 in order to tap into the growing Islamic finance market. This move could signify a new era for the financial world and demonstrate to both Muslim and non-Muslim audiences that Islamic finance offers ethical and socially-responsible alternatives to conventional banking.

1. BUSINESS FEATURE
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According to Cameron,London is the biggest
centre for Islamic finance outside the Islamic
world and the new Islamic bond index on the
London Stock Exchange (LSE) would help
stimulate fixed-income investments from Muslim
investors — especially investors from oil-rich
Persian Gulf countries — by helping them identify
which listed companies adhere to Islamic
principles.
It can only mean more jobs in the financial
sector as the number of Islamic banks in UK
could increase from seven banks and we can see
more intermediaries and Investment companies,
this all will have encouraging signs for the job
market as a whole from education to lawyers
working in this sector.
The move to access this form of finance by the
world’s most sophisticated financial market could
be the start of a new era for a financial world still
reeling from the global banking crisis.
Defining Islamic Finance
Despite the name, Islamic Finance is not a
religious product,rather one that avoids interest.
There should be an element of controlled risk
and an adherence to the Prohibitions of Sharia,
such as where alcohol is concerned. Islamic
Finance is an alternative to conventional banking
for Muslims who do not wish to compromise their
beliefs while raising finance and investment.
Islamic and Ethical Finance share many of the
same values,although the former takes additional
guidance from the Quran,the holy book of Islam.
The values of Islamic Economics
Basic principles of Islamic Economics
Prohibition of the accumulation of wealth
Islam has forbidden the concept of interest on
capital.The general rule of collecting wealth in
Islamic economics is to earn a profit by
embracing the risk factor. In other words: no
risk,no gain.
Individual liberty
Islam illustrates a society where an individual
is not dependent on others. Islam wants
everyone to realise his or her own ability and
potential in society. That is why Islamic
economics and laws give so much priority to
the self-employment or Mudarabah and
Shirkah forms of business partnership.
Wider circulation of wealth
The wider circulation of wealth in Islamic society
is made possible through the concept of Zakat.
Zakat,an important feature of Islamic economics,
is the fixed percentage paid on certain
commodities or goods such as gold. These
charitable payments are then distributed to the
poor and needy.
Gharar and Riba are also an important part of
Islamic economics. Gharar means uncertainty,
risk and hazard.In Islamic economics,Gharar is
generally considered of less significance than
Riba, which is the interest on goods or capital
and is strictly forbidden in Islam. Islam regards
wealth as a source of revenue for the community,
which must be constantly kept in circulation by
preventing hoarding. Wealth that is legally
earned must be invested in the community to
improve its economic welfare.
The growth of Islamic Finance
Islamic Finance has grown as both Islamic
and non-Islamic institutions saw a stable
alternative to the conventional system after
the 2008 financial crisis.Through research, it
has been discovered that Islamic Investment
that did not trade debts or invest in banks
outperformed the index and weathered the
crisis,growing at a rate of 15-20 per cent.
The main concept in Islamic Finance is that
money is not to be treated as a commodity,i.e.
you cannot create money from money.This is
in stark contrast to conventional banks, in
which a customer deposit is lent to another
customer at a higher interest rate. In these
institutions, the banker-customer relationship
is always a debtor-creditor relationship,rather
than a profit and loss sharer using different
contracts such Mudarabah or Musharakah
(partnership).
Under a Mudrabah financing contract the
bank agrees to finance the entrepreneur on
the understanding that both parties will share
the profits of the particular venture being
financed. The deposits made to the bank
under a Mudrabah contract are treated as an
investment in the bank by that individual. In
addition, Islamic Finance is asset based, so
each transaction should have underlying
assets that make the risk controlled.
Islamic banks share the profit and loss,
gaining interest from the quality of their
investments.Because sustainable growth is so
important in Islamic Finance, institutions
should aim for a balance between profit and
growth instead of a ‘boom bust’ cycle.
Unfortunately, in reality Islamic Finance
found itself growing in the same way as
conventional banking by giving extensive
finance, something that the 2008 crisis forced
industry players to rethink. Examples were
made public of real estate being developed in
the GCC,which did not take care of its workers,
a fact which acts against the holistic approach
demanded by Islamic Finance.Instead,Islamic
Finance should create added value to the
society, better working conditions to
employees and help in poverty alleviation.
Islamic microfinance can play a role in
poverty alleviation,empowering entrepreneurs
and presenting opportunities to ‘non-bankable’
people and entrepreneurs without the backing
of a large bank.Microfinance would not lead to
growth,but it would empower women,support
small businesses and usher in its own
innovations. The contributions of businesses
aided by microfinance would, in time, feed
back into the GDP.
Waqf (trust) is a tenet of Islamic Finance in
which the trustee manages money for a certain
purpose.These trusts are left by the wealthy for
the benefit of society (i.e.education).
What’s next?
For Islamic Finance to grow it needs to
experience a change in mind-set – both our
minds as investors and bank customers, who
should accept the share of profit instead of the
regular interest rate.Islamic institutions need to
be transparent. Islamic Finance should provide a
competitive product to their customers,and the
benefits to society should be weighed against the
morality of Islamic Finance in the projects.Islamic
banks are for profits,but they must still adhere to
the rules of Islamic Finance.
Islamic Finance is not just for Muslims.Islamic
banks should market their services to Muslim and
non-Muslim alike;they are selling ethical products
that add value to society.Islamic banks should not
compete in making profit with conventional
banks,as the ideology is fundamentally different.
However,it is clear that both banking systems
have lessons to learn from each other. The
business-thinker Michael Porter is revaluating the
shareholder maximisation theory and creating
shared value by reconceiving the intersection
between society and corporate performance.
This is a business development by Michael
Porter that agrees with the ethics and the value
of Islamic Finance.
Sahar Ata is a lecturer at the London School of
Business and Finance (LSBF),a private for-profit
business school based in London, UK with
worldwide campuses.7
At the World Islamic Economic Forum (WIEF) 2013, the British Prime Minister David Cameron
announced that the UK would issue Sukuk, or Islamic bonds, for £200 million in the early part
of 2014. If the issuance goes ahead, Britain would become the first non-Muslim country to
issue sovereign Islamic bonds. To the world and the Western World in particular this could be
a new way to look at finance and the business of it. So what then is Islamic Finance?
By Sahar Ata
Islamic Finance
BUSINESS FEATURE
Value for money
Held for the first time outside Islamic countries,
TheWorld Islamic Economic ForumWIEF,themed
‘Changing World, New Relationships’, saw the
attendance of 18 heads of state and government
and deputy heads of government, 50 ministers
and 2,700 delegates from 128 countries,the largest
congregation ever in the history ofWIEF.
On such a world stage at London’s Excel
Centre last year, Britain’s announcement that it
plans to become the first non-Muslim country to
issue sovereign Islamic bonds,known as Sukuk,
beginning as early as 2014 has significant
relevance for the country and indeed the world
finance market.
The plans are all part of the British
government’s strategy to acquire as big a
slice as possible of the fast-growing global
market of Islamic finance, which operates
according to Islamic Sharia law and is
growing 50 per cent faster than the
conventional banking sector.
This area:
Where Islamic Finance differs from Ethical
Finance (such as Prohibition of Islam)