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Hong Kong must attract Islamic finance to remain a global market

By Vikas Mohammed Khan, South China Morning Post

Hong Kong must attract Islamic finance to remain a global market 1

Peter Forsythe denounces Islamic banking practices as being “the work of global Islamists” (“No place for ‘sukuk’ bonds in HK market”, November 22).

The adjective “Islamic” refers to rules of procedure (as “kosher” refers to Judaic procedures for food and is commonly patronised by Muslims overseas, not only by Jewish people). It is simply advertising to buyers that here is a product which is of a certain nature. The word “halal” would do just as well. The fundamental premise is that money not be allowed to grow by time alone, i.e., by interest. The lender must accept some risk in the venture being financed.

It also makes foreclosure on “pledged” assets somewhat difficult, and is in general more lenient towards the borrower than conventional debt.

Islamic financing tries to, or is at least designed to, link social benefits to purely monetary ambitions, which is hardly a bad thing in the “me-my” culture of today. Let us not denounce it just because it is associated with the current Western hype regarding Islam.

The ethos of Islamic financing is related to the concept of social justice, and is not limited to Islam: the Old Testament categorically forbids interest. Several Catholic popes have historically condemned the practice, as have Plato, Gautama Buddha, Moses, and Thomas Aquinas, among others.

Philosophy aside, on a fully practical note there is obviously a large population of Muslims worldwide, and therefore Islamic financing is seen by some banks and financial institutions as a good market (US$1.3 trillion by some estimates). Hong Kong is now trying to actively tap into this market, and very rightly so, in my opinion.

At 1.62 billion, Muslims are 23 per cent of the world’s population, and more than 40 per cent of Southeast Asia’s. As a global financial centre, without any doubt Hong Kong must try to attract this large and growing market. You can hardly be a global centre while ignoring a quarter of the world and almost half your largest neighbouring region.

Mr Forsythe is plainly fatuous in connecting Islamic financing to some global religious conspiracy. His labelling of Islamic financing as “inefficient” is hardly credible, especially in light of the “efficiencies” of Wall-Street-type banking practices as seen over the last few years.

This article appeared in the South China Morning Post print edition as Global financial centre can’t afford to ignore Islamic banking

No place for ‘sukuk’ bonds in HK market

I refer to the article (“Bonds of faith”, November 15), on Hong Kong’s issue of its first sharia-compliant bonds (or sukuk).

It paints these sukuk in a completely positive light, but that is not the whole story.

Sukuk are inefficient. Many Islamic banks promote a ban on usury as it accrues interest. But no bank can work for free, so deals are structured with sale and buy-back of artificial “assets” with profit margins at levels equivalent to prevailing interest rates.

The pre-eminent Muslim scholar of sharia finance, Timur Kuran, notes that all Islamic banks actually give and take interest routinely, using “ruses” to make interest appear as a return for risk.

In short, they are an elaborate ploy of form over substance, and inefficient because of that structure: sukuk have fees up to 20 per cent higher than standard.

Is it right that we, the taxpayers, should be expected to pay for this inefficiency by exempting taxation on the transfer of underlying assets, an exemption not granted to any other financial instrument?

Sukuk are discriminatory. Banned investments include not only alcohol and gambling. They are also not permitted to invest in companies that benefit non-Islamic religions; companies that promote equal rights for women and gays; companies involved with Western books, films or media; and companies linked to Israel.

Is it right for Hong Kong to promote manifestly anti-Semitic, homophobic and misogynist financial instruments?

Sukuk are an Islamist programme. Sharia finance was first promoted by the Pakistani Islamist Sayyid Al-Mawdudi, founder of the radical Jamaat-e-Islami, in the 1960s. It is promoted today by Islamists like influential Egyptian cleric Yusuf al-Qaradawi as being “jihad with money”.

According to Professor Kuran, “Mawdudi’s aim … was to reassert Islam’s importance … [to] defy the common separation between economics and religion… to invoke Islamic authority.” Sharia banking, he says, boosts the global movement of Islamism. Is it right for Hong Kong to support the work of global Islamists?

Sukuk perform badly. As for sharia finance’s alleged success, that is moot: In the UK, sharia-compliant banking has been a huge flop.

Our government should reconsider its support for an innately inefficient, discriminatory and poorly performing religious financial product.

Peter Forsythe, Discovery Bay

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