By Faeza Abdurazak
Earlier this month, Dr. Cedmoir Nestorovic, a professor of international marketing and geopolitics at the ESSEC Business School of Paris and Singapore, gave a lecture at MEI entitled “Driving Forces for the Development of Islamic Finance: Special Focus on the Middle East.” The seminar could not have been more relevant and timely for a Singaporean audience, as The Banker recently listed the country as 24th of the top 25 countries with shariʿa-compliant assets.
The seminar addressed Islamic finance as a relatively new phenomenon in the Middle East, with disparate penetration rates ranging from more than 30 percent of total banking assets in Saudi Arabia to virtually 0 percent in Oman. Islamic finance markets are primarily driven by government support and initiatives, rather than customer-based demands.
Dr. Nestorovic’s aim was to give the fundamentals of Islamic finance and analyze the driving forces of the industry, one that has so far proven successful. Islamic finance is based on the principle that the exploitation of a weaker party is not allowed. A similar ethical motivation can be found in the consumer protection laws of a conventional bank. It is in this spirit that speculative investments and interest rates are prohibited in Islam.
However, through four scenarios of home mortgages in which one was done via a conventional bank and the rest via Islamic banks, Dr. Nestorovic showed that the variations could very well be a matter of semantics. In all of the four cases, the payments might each be the same in amount, and the rates of return to each of the banks might also be the same. The only difference was that in each of the three Islamic transactions, the rate of return is based on an asset transaction, whereas with the conventional transaction, the interest is premised on a money loan.
Dr. Nestorovic concluded that Islamic financial markets, despite slow growth and a lukewarm response from Muslims globally, are an inevitable phenomenon. Islamic finance will gradually rise in importance due to consumer demand, similar to how the global halal food market has expanded over the years. He posited that offer and demand, favorable government regulations, and religious motivations of entrepreneurs will determine the growth of Islamic finance in the future with consequences for all countries to consider, Singapore included.
To read an article (and its English translation) written about the event for the Singaporean Malay language newspaper Berita Harian, please click here.