Is there Islamic finance in Singapore

Islamic banking under the sign of the Koran

Nothing is lacking - the "Institute of Islamic Banking and Finance" - the International University of Malaysia. The computer pool, the seminar rooms, the student residence - everything is ultra-modern, everything is perfectly equipped. The "Institute for Islamic Banking and Finance" is located on the extensive grounds of an old villa in one of the better suburbs of the Malaysian capital Kuala Lumpur.

120 students conduct research here - two thirds of them are foreigners. Saudis are among them, Indonesians and doctoral students from Bosnia. "The demand is enormous," emphasizes the dean of the institute, Azmir Omar. Last year alone, 400 young scientists applied for 40 free places.

"Malaysia has made a name for itself as one of the world's centers for Islamic banking and finance. People from all over the world come to us to learn more about Islamic banking. Islamic banking in Malaysia is a success story - just like our institute. We do very intensive research. Many of our graduates now hold important positions in the banking business. In the Middle East, in Europe, in Asia. "

"Islamic Banking" - also known as "Sharia Banking" - was introduced in Malaysia in 1983 - a good two decades after banks in Egypt first experimented with it.

Islamic banking is based on strictly interpreted rules of the Koran:

"God allowed the purchase and forbade the riba", "says the Koran in sura II verse 275. Riba stands for interest. Like Jesus, the prophet Mohammed also acted against the usurers of interest of his time.

The ban on lending money at a fixed interest rate still applies today. Just as it is considered unethical to speculate, emphasizes Rithuan Mohamed Shamsudin, director of the Association of Islamic Banks in Malaysia, or IBIM for short.

"" Islamic banking is based on economic activity. We are not allowed to make money in businesses where nothing is produced. You can only invest money in activities that advance the economy. And it must also be clear: the banks and their business partners share both profits and losses. It is played with open cards from the start. You can't hide any details from the other. "

And there are other taboos, adds Azmir Omar from the Institute of Islamic Banking and Finance. Nevertheless, despite everything, the trained businessman Mohammed was no stranger to a good profit

"Islamic banks are not allowed to engage in gambling. Alcohol and pornography are also taboo. This ethical component distinguishes Islamic banks from standard banks."

The more than twenty banks in Malaysia, which are either purely Islamic or have so-called "Islamic windows", offer their customers financial services on the basis of interest-free transactions. Instead of promising them interest, they get a share of the bank's profits.

More and more Malaysians are taking advantage of this offer. "Islamic Banking" now has a share of 20 percent of the total market, and the trend is rising.

This is also confirmed by Asyraf Wajdi Dusuki from the "International Sharia Research Academy for Islamic Finance" - called ISRA for short. ISRA is a relatively new player in the field of Islamic banking. The research institute was set up by the Malaysian central bank a good two years ago - to further "professionalize" Islamic banking.

"Malaysia already has the strongest Islamic financial system. When I say" strongest ", I mean that we not only have Islamic banking, but also an Islamic capital market and takaful, that is, Islamic insurance. And something else sets us apart : Our financial system is much more regulated, we work according to clear Sharia principles set by the state. I think all in all Malaysia has the most sophisticated Islamic financial system of all Muslim countries. "

Worldwide, Koran-compliant banking transactions only account for a good one percent of the global market. But business under the sign of the prophet is growing by twenty percent a year. According to estimates by the US custodian "State Street", more than 500 billion US dollars are managed under Sharia regulations, some rating agencies even speak of around 800 billion.

Asyraf Wajdi Dusuki from ISRA cannot say exactly how high the Malaysian share is. But it should be around a tenth, he says. For the experts a sign that the "Malaysian way" has paid off.

"If you look at history: Malaysia is one of the pioneers in the development of Islamic financial transactions. We were the first back then - together with Iran, Pakistan and Sudan. But, unlike the three countries, Malaysia pursued its own strategy Right from the start, we opted for a dual banking system. The conventional banks could continue to operate as usual, while Islamic banking operations were gradually introduced. In 1983, following the passage of the Islamic Banking Act, the government set up an Islamic bank for the first time to see how it develops: That was "Bank Islam". After ten years the government took stock and determined: Islamic banking can hold its own in the market. After that, it allowed conventional banks to open so-called Islamic windows. "

Malaysia is a multi-ethnic and multi-religious state. 60 percent of the population are Muslim Malay, the rest Chinese and Indian. And the majority of them are Buddhists or Christians. The Chinese minority in particular plays an important role in the country's economy. It is the economic elite.

One of the goals of the Malaysian central bank is explicitly to make the advantages of Islamic financial products palatable to this elite. That seems to have borne fruit. According to Azmir Omar from the Institute of Islamic Banking and Finance, the Chinese minority now conducts 70 percent of their banking business in accordance with Sharia law.

"Malaysia always tries to be proactive. That is, the state tries to move in line with tradition and at the same time to meet the needs of the market. Malaysia has not proceeded as radically as other countries. First of all, we have the conventional banks imitated their financial products, and then checked that they comply with Sharia law. In a second step, we refined the products so that we could also offer them to customers in the Middle East. If you will, we haven't invented anything new, but something that already exists modified to conform to Sharia law. "

Modifying something that already exists - in other words: Western financial products. For many Islamic bankers and politicians, this is now not enough.

"The gurus from the west have failed in theory and practice. We need a new way", "so the assessment of the" World Islamic Economic Forum "- the worldwide Islamic economic forum with its headquarters in Kuala Lumpur.

"Sharia banking operations are capable of taking on a global leadership role," "said Susilo Bambang Yudhoyono, President of Malaysia's neighboring Islamic state, Indonesia.

Such brash tones are rarely heard in Malaysia. "Well-intentioned advice," says Azmir Omar, half-ironically, "is the responsibility of others." But be clear:

"" The global financial crisis has not hit the Islamic banks in Malaysia as badly. Why? Well, first of all, we had the 1997/98 banking crash. Since then, the banks - including the Islamic ones - have been very strictly regulated by the central bank. As a result, they have weathered the crisis much better now. Our Islamic banks have hardly ever got involved abroad - and have not given out any money that could now collapse. "

Something else benefits the Islamic banks in Malaysia: They tend to lend conservatively. "Bank Islam" - the largest Islamic financial institution, for example - requires an equity contribution of 30 percent for real estate transactions. This high equity share guarantees banks and investors alike greater stability.

There are quite a few experts who argue that the global financial crisis would have been far less bad if the financial world had adhered to Islamic rules. Even more: the US real estate crisis would not have existed in this form.

In fact, under Islamic law, it would have been inconceivable for banks to turn customers on loans for houses they could not even afford. And which are then sold all over the world in package form. If a customer wants to buy a house according to Sharia principles, he does not actually take out a loan, but instead signs a contract with his bank.

The house buys them - in order to pass it on to the customer by return post - with a previously negotiated surcharge. The customer then stutters the purchase price in installments. This loan business - called "Murabaha" in technical jargon - accounts for around 80 percent of Islamic banking in Malaysia, reports Rithuan Mohammed Shamsudin. In the eyes of the chairman of the Association of Islamic Banks in Malaysia, the "conservative approach" has proven its worth.

"Every time you do a transaction within the framework of Islamic banking, you can be sure that this transaction is covered by a specific value. With conventional banks, they often do not even know whether they are actually investing in the product themselves or into a sub-product, i.e. an offshoot of the product. And if this offshoot goes bankrupt, you lose all your money. With Islamic banking, you know perfectly well: This is your financial product. Islamic banking is inherently conservative. "

Indeed? There has been no excess in Malaysia so far, but the example of Dubai shows that Islamic banking is not immune to speculation either. The "Sukuh Crisis" in the Gulf State has left its mark on the Muslim world. Sukuh is understood to mean Islamic bonds. The real estate developer Nakheel from Dubai alone had obtained around 3.5 billion US dollars per Sukuh to build dream villas off the coast of the emirate.

The global real estate crisis thwarted Nakheel's plans.The business collapsed, the developer was on the verge of bankruptcy - and could only be saved because at the end of May the creditor banks, with whom Nakheel was in the chalk, agreed to waive the repayment of the billions for at least five years.

“An astonishingly large number of Western financial products can also be implemented in accordance with Islamic law with a little creative finesse,” "Der Spiegel said not so long ago. This is a thorn in the side of many younger Islamic banking experts. Suriana Omar is one of them. The A 27-year-old Muslim comes from Singapore - and is doing her doctorate at the Institute of Islamic Banking and Finance in Kuala Lumpur - she thinks the fatwa of the Pakistani legal scholar is correct.

"" If you look at the practices that are common in the Islamic banking industry, there are plenty of debt-based financial products out there too; the risks are not shared across all shoulders. Are we really sure? What if we are basically just imitating conventional western banks? What will happen to us in the next crisis? Now we were lucky. Because we are so small, only a small wave caught us. If we don't start refining our financial products, we will only see the seeds for the next crisis. "

It is no coincidence that the "Sukuh Crisis" occurred in one of the Gulf states and not in Malaysia - for Asyraf Wajdi Dusuki from the Research Institute for Islamic Finance.

In Malaysia, the state has set strict guidelines: If an Islamic financial institution is to be founded, it must be ensured that it automatically has a Sharia supervisory board of at least three members - a "council of religious scholars". It defines what is allowed and what is not.

Each scholar is only allowed to watch the bankers on a maximum of one supervisory board - this is to avoid overlapping interests. That is the microlevel.

At the macro level, the highest authority is the Central Bank's Sharia Council. He coordinates and monitors all banking activities.

"In the Middle East there is no centralized Sharia supervisory authority. You can then observe a trend that is known in the market as" fatwa shopping ". According to the motto: I look around the market until I find a financial service provider Let's say there is this bank that has a rather liberal scholar on the Sharia supervisory board who approves financial products that promise more profit, but at the same time harbor a great deal of potential for conflict - especially with the bank Ask whether they comply with Sharia law. In Malaysia, the Sharia Council would have to give the central bank its OK. And if it says no, the product would be taken off the market immediately.

The Central Bank of Malaysia has set itself the goal of further increasing Shariah banking market share by twenty percent. In doing so, it is implementing the requirements of the conservative federal government, which in recent years has more and more often struck religious tones and is increasingly professing the "Islamic character" of the country. As part of a "financial liberalization plan", seven new licenses are to be issued for Islamic banks by 2011 - including two megabanks.

"These two banks are supposed to ensure that Islamic banking gets a bigger share of the market. When these two mega-banks arise and operate in the market - each with a capital of one billion US dollars - then of course they stir up the market. You You can't just let the capital rest. You have to invest it. That creates more competition among the existing providers. Ultimately, it benefits the whole system, "" says Rithuan Mohammed Shamsudin from the umbrella organization for Islamic banks in Malaysia.

Western banks are already involved in the Islamic banking market. The British Barclays Bank has been offering its Malaysian customers Islamic financial products since March. For Ahmed Fuzi Abdul Razak from the World Islamic Economic Forum, this commitment is part of a global trend.

"" Today there are more than 300 financial institutions operating Islamic banking worldwide - in 51 countries, including the United States. If you look at the big European banks: Amrobank, HSBC, Standard Chartered - they all have Islamic windows now. That is, they offer Islamic financial products. More and more western banks are realizing that Islamic banking has its merits. Islamic Banking focuses on ethical financial business. To transparent business practices. These are all questions that the financial world has to deal with globally in times of crisis. "

Islamic banking as a model? According to Sharia law, are banking transactions actually more moral per se? More transparent? Suriana Omar, the doctoral student at the Institute of Islamic Banking and Finance in Kuala Lumpur, is not so sure.

"The longer I study Islamic Banking, the more I realize: theory and practice are two different things. In theory, everything sounds very good: No excessive speculation; the risks are shared fairly. But in practice it often looks different. We all have to meet each other ask: Do we really adhere to the rules of the Islamic economy and Islamic financial transactions? Or are we not just copying conventional, western products and giving them an Islamic label? "

Skeptical sounds. Asyraf Wajdi Dusuki is such a strange thing. For the man from the Research Institute for Islamic Finance in Kuala Lumpur, banking in accordance with Sharia law in Malaysia is one thing above all else: a success story.

"We have achieved a 20 percent market share. Ok! But what is that when you consider that 60 percent of the population in Malaysia is Muslim? Ideally, all Muslims would have to use Islamic financial products. Ideally, our market share should be 60 percent." There are still far too many Muslims who do not even know that such Islamic financial products exist. Clarification is still needed. But: The development of the last ten years has been clearly positive. I am confident. "