Re-Position Islamic Banking & Finance, Says Najib

KUALA LUMPUR, Nov 18 (Bernama) -- The Deputy Prime Minister, Datuk Seri Najib Tun Razak today outlined general work plans to position and re-position Islamic banking and the finance industry to enable it to fully exploit the potential market of one billion Muslims worldwide.

Currently, although the Islamic finance industry is the fastest growing segment in international financial services, it is still too small compared with the size of the potential market, he said.

"A key impediment to the growth of Islamic finance is the lack of awareness among the public on Islamic alternative modes of banking,insurance and investments.

"The industry must continuously engage and educate the general public in order to address the problem," he added.

Islamic finance, he said also needs further research and study with discourses carried out at all levels and should involve regulators, practitioners as well as academicians.

"Investment in human capital must further be improved. The lack of knowledge in Islamic finance is strongly related to the shortage of qualified experts.

"Hence, it has affected the innovation of new products and services in the country," he said in his keynote address at the Kuala Lumpur Islamic Finance Forum 2008.

"There is also an urgent need to create greater awareness on Islamic finance among market participants through research, education and training," he highlighted.

He said despite the divergence of Shariah rulings, its should not be an impediment, as long as they are backed by sound arguments and recognised legal methodologies.

"Any particular area of divergence that is of serious concern should be revisited and reviewed in order to come up with better and more acceptable solutions," said Najib, who is also the Finance Minister.

He also said that the legal and regulatory framework should be resilient and facilitative.

"Dispute resolution mechanisms should also be more accommodative to the application of Islamic legal rules and methods in order to avoid embarrassment to Islamic banking cases as a result of incoherent and anomalous legal judgements," he stated.

Najib said other related regulations and supervision should also be equally and adequately addressed so as to bring the Islamic banks and financial institutions at par with international standards.

To meet these challenges, he said new supervisory and regulatory procedures must be developed and modifications made to the existing structures or procedures.

"However, since the banking sector is highly regulated, any modification must be made with extreme care as the failure of an Islamic bank could undermine depositor and investor confidence, leading to a crisis in the whole financial system, just like what we see happening currently in the conventional market," he warned.

On the outlook, he said the Islamic banking industry is forecast to grow at a rate of at least 20 percent between now and 2012, with more than US$600 billion held or managed by Islamic institutions and the figure is expected to grow to US$1 trillion over the next couple of years.

According to Najib, growth has also been seen in the other major components of the Islamic financial system such as Islamic mutual funds estimated to be about US$300 billion, while global takaful or Shariah compliant insurance contributions are estimated to be about US$5 billion and expected to triple by the end of the decade.

-- BERNAMA

U.S. Interest in Shariah Finance Opens Dangerous Doors, Critics Say

Last Edited: Thursday, 13 Nov 2008, 10:43 PM CST

Created: Thursday, 13 Nov 2008, 4:43 PM CST

11/13/2008 -- Shariah-compliant banking, sometimes called Islamic banking, is growing in popularity in the Western and Islamic worlds. But critics say American interest in the system at a time of economic crisis is opening the door to increased Islamic influence in the American banking system. Worse yet, some fear the banks may be helping to finance international terrorism. In Shariah-compliant banking, lenders may not charge interest and investors cannot make money from forbidden industries like gambling, alcohol, pork and pornography. Selling debt, devising derivatives and short selling are also prohibited, and investments must be closely tied to actual assets. In the U.S., the Dow Jones Islamic Index tracks Shariah-compliant companies and funds, and funds have sprung up like the Amana Mutual Funds Trust and the Azzad Asset Management. American investment funds, like those offered by TD Ameritrade and Charles Schwab, can invest in Shariah-compliant companies, and those companies can offer investments in American companies. Top holdings in the Azzad Ethical Midcap Fund, for example, include Western Digital Corp., Southwest Electric Co. and Apple Computer, Inc. But allowing Shariah-compliant finance in the U.S. is green-lighting a seditious system that supports jihad, said Frank Gaffney, founder and president of the Center for Security Policy in Washington, D.C. "If you understand what Shariah is, you understand that it is a pretty awful system. Not something that you'd want insinuated in your society and becoming a major feature of your economic system," Gaffney said. "Shariah (Islamic law as dictated by the Koran) governs all aspects of life, from the personal practice of the faith to how you relate to your family to how you relate to your business partners, to your community ... all the way up to how the world is run, and it is all one seamless program. You can't say 'I'll take the personal pietistic practice ... and skip the beheading and the flogging and the stoning and the global theocracy,'" he said. Punishments for some crimes under Shariah law include amputation and stoning to death. On Tuesday it was revealed that a 53-year-old Egyptian doctor had been sentenced under Shariah law in Saudi Arabia to 15 years in prison and 1,500 lashes for allegedly getting a Saudi princess in his care addicted to drugs. But despite Islamic banking's association with Shariah's harsh practices, the U.S. government is taking an interest in it. On Oct. 25, while on an official visit to Saudi Arabia, Deputy Secretary of the Treasury Robert M. Kimmitt told reporters that the U.S. was interested in learning more about Islamic finance, and the Treasury Department held an "Islamic Finance 101" course in Washington on Nov. 6 to educate government officials on its ins and outs. Islamic banking and investment products sprang up beginning in the 1970s when the Middle East experienced its first oil boom, and have been growing in popularity as oil prices soared in the past few years. Yet it's unclear who is investing in Shariah-compliant mutual funds and other investments, Gaffney said. "An awful lot of them seem to be petrodollar-rich potentates and companies and royal families." Nicholas Kaiser, fund manager at Amana Mutual Funds Trust in Bellingham, Wash., said that his company's Shariah-compliant mutual fund products are no different from any other religious funds and that the company carefully screens its investors. "Our shareholders are American. We don't take money from non-Americans because of money-laundering laws. We have to know our shareholders and be sure they aren't engaged in nefarious activities. We screen and check and verify every shareholder," Kaiser said. He disagrees with Gaffney's assertion that Islamic funds are a threat to the American way of life. "We simply take people's money, invest it and give it back to them when they want it. We don't try and convert the country. We don't have any religious position. We aren't evangelical. We aren't zealots. We're money managers," Kaiser said. "I happen to be Episcopalian." Azzad Asset Management declined to be interviewed for this story. Estimates put the Islamic banking industry in the hundreds of billions of dollars. And while it's a small portion of the global finance industry, the Islamic sector is growing — by more than 30 percent in 2007. A board of Shariah scholars determines which investments are compliant. As Shariah law forbids charging interest, Shariah-compliant mortgages, like those offered by Devon Bank in Chicago and Guidance Residential, which operates in 23 states, are attracting pious Muslim buyers. In one type of Shariah-compliant mortgage the bank buys a home and then either leases or re-sells it to the purchaser in monthly installments — interest-free, but at a higher price. The bank's profit and the buyer's payments wind up being similiar to what they would be if the bank charged interest, said Ibrahim Warde, adjunct professor of international business at Tufts University. "In the Koran there's a verse saying that making money from trade is good and making money from money lending is not, so basically whenever transactions are structured, they are sales transactions," he said. Rachel Ehrenfeld, director of the American Center for Democracy, said that whether they're sound investments or not, conforming to Shariah shouldn't be American policy. "We should not allow Islamic banking to continue and definitely not to flourish in this country," Ehrenfeld said. "Muslims in the United States who want to conduct their business according to Islamic banks can do it with mortgages ... but to allow Islamic banking as a rule to operate — it's our money and we shouldn't be abiding by Islamic laws. Period. I don’t want to have any kind of association with any laws that dictate wife-beating in Saudi Arabia," she said. Ehrenfeld said that the practice of "zakat" — giving alms to the poor — while innocent on the surface can in fact be used to promote terrorism and the spread of radical Islam. She said that that the money the Shariah banks give to charities goes to build madrassas and mosques and spread radical Islam and anti-American sentiment. "They also send money to Hamas. They also send money to Al Qaeda," she said. "This is a huge Pandora's box. We don't know what the hell is going on with their charities ... even if nobody will say openly that they're giving money to terrorism." In June, the Kuwait-based charity Revivial of Islamic Heritage Society was designated by the U.S. Treasury for providing money and material support to Al Qaeda, its affilitates and to acts of terrorism. "It is illegal for anyone in the United States to provide funds to charities that have been designated by the Treasury Department as supporters of terrorism under Executive Order 13224. If the Treasury Department has information that anyone in the United States were engaged in such activity, we would take appropriate action," said Treasury spokesman Andrew DeSouza. Warde, however, said that there is no reason to think that all Islamic financial institutions have terrorist ties. "There are some people who equate all things Islamic to terrorism," he said. "Some people look at the world that way. We've seen that during the presidential campaign with the insinuations that Obama was a Muslim, therefore a terrorist. I don't think we should give much credence to that." He said critics are not being fair to the system. "People who don't like Islam and who are afraid of Islam would obviously not like the notion of Islamic finance. I'm not sure that those who hold this view necessarily know much about it, but it's some kind of visceral view that some people hold," Warde said. source: US Interest in Shariah Finance Opens Dangerous Doors, Critics Say MyFox Memphis, TN

Banking: Advice to depositors

Written by Dele Sobowale

Sunday, 26 October 2008

Hereditary bondsmen, know ye not who must be free must strike the blow? —Lord Byron, 1788-1824.

NIGERIANS never cease to amaze me. Since the series on banks started, I had received nothing less than 1,300 telephone calls and text messages; virtually all complaining about what they regard as maltreatment by their banks. A few have been quite legitimate allegations given the provisions of the Guide To Bank Charges.

Some have asked pointedly, but others have asked me indirectly what can be done. Let me be brief. Workers did not start to get a fairer deal until labourers started to form unions. Now, there are shareholders associations hopefully looking after shareholders interests. The banks in Nigeria are a cartel facing individual depositors.

In that contest, the victor is known even before it starts. As Ernest Hemmingway told us, "A man alone hasn't got a chance". The only way depositors can have power is to form groups. I thought that was clear. So go and gang up too. But choose your leaders carefully.

Latest on NSE: After weeks of utter bewilderment by the leaders of the Nigerian Stock Exchange, we had an announcement of N600 billion bail out. It turned out to be a mirage. Some banks will soon need bailing out themselves as their overseas exposures turn sour and remittances by Nigerians from across the globe drop significantly. At any rate, N600 billion will buy very little and surely nobody will borrow at 25% to buy shares anymore. They should forget it. Anything that sounds too good to be true, as the NSE's bubble economy was, is probably not true.

Technocrats for the guilottine

For every folly of their princes, the [people] feel the lash — Horace, 65-8 B.C.

PERHAPS, we can postpone killing all the lawyers; they will be roasted in hell anyway. Hanging the professors can also wait; at least, they work hard and are badly paid - except those who get into government and become ministers. The ministers we need to dispose of right away.

There is a more dangerous group of people than even those; as your presido has just discovered. You have seen them on television and newspapers; they have been appointed as ministers and special advisers to presidents or chief economic advisers, a few have become governors of Central Bank and quite a handful have been captains of industry.

Those in the private sector have practiced Nigeria's brand of parasite or rogue capitalism.
They generate one percent of foreign exchange earnings and collect 15 percent of foreign exchange generated from crude oil. Collectively, members of this dangerous cult are called technocrats.

But, before going into full discussion on why the technocrats in Nigeria deserve to have their heads chopped off, as soon as possible, let me let you into a secret. The global recession, now underway, was the handiwork of technocrats worldwide - including their Nigerian members. Now, billions of people are going to feel the lash of hunger, malnutrition, the shame of joblessness and all the maladies associated with broken homes and increasing crime rates.

And all these will occur because the technocrats fouled up.
Professor Joseph Stiglitz, mentor to our former "Madam Due Process", now with the World Bank (umh!), was one of the Harvard University professors who produced the large number of global technocrats who, in turn, invaded the world, preaching the gospel of unbridled capitalism and globalization of markets as an indispensable means of spreading wealth.

Today, the integrated global economy they have created is heading towards total collapse because of the sins of a few large financial houses. (There is a lesson in that for those who think creating mega banks constitutes an end in itself. When the Agbonmagbe Bank (father to WEMA) went under in the middle of the last century, it took less than N1 million with it.

Today, depositors of Societe General or Savanah Bank have, at least, N10 billion atthe bottom of the rat hole the banks have entered. So much for bigness as a guarantee of safety). At any rate, Lehman Brothers alone, before the crash, could have bought all Nigeria's mega banks and still have money left for all those in Benin Republic; yet, it went under right in front of our eyes.

There is no economic calamity that has befallen the world's economy that does not have the finger prints of technocrats on it. Thus, when a news report announced that Yar'Adua was shopping for technocrats, I thought the time had come to speed up the purge of that class of social menace. It is better to get them before they do us in. As a matter of fact, they have already done enough damage.

Yar'Adua would be better to go shopping for witch doctors. Unfortunately, we missed a chance last week, to grab many of them at once and send them to the axe man before they escape abroad. By the time you start reading this, the technocrats, who have taken the Nigerian Economic Summit Group, NESG, hostage would have wound up their fourteenth talkfest. One thing is certain- they would have passed another communiqué full of the usual claptrap masquerading as suggestions to move the way forward. President Yar'Adua has been billed to deliver the keynote address.

But, I doubt if the NESG consulted the president's doctors (assuming they have not also taken the oath of secrecy) to find out if Yar'Adua can sit down for four hours to listen to a lot of hot air. So the president might not even attend. He is probably still working on his cabinet and the two budgets -2008 and 2009 simultaneously.

After all, that, we were told, was what kept him from attending the United Nations Conference where other heads of government were present. If he can ignore his equals and even superiors on the world stage, what is a bunch of salad eaters calling themselves NESG to him? At any rate, he probably won't miss anything. And the communiqué will probably join all the other stuff gathering dust somewhere in Aso Rock.

Still, the technocrats are dangerous and should not be underestimated. They have got some of their camp followers into top positions in every government where they proceed to reek havoc. Certainly, you remember El-Rufai, a technocrat, who became Director General of the Bureau of Public Enterprises. Given that power, he was able to hand over NITEL to one Pentascope.

At the time NITEL was making about N1 billion a year, a figure government considered inadequate. By the time Pentascope was through with NITEL, it had lost N50 billion. From time to time, the young man tells anybody who cares to listen to him that "I have no regrets." That's a technocrat for you. His replacement and current technocrat in residence has been rumoured to be trying to sell the NNPC. Again, that is a technocrat for us. And if you don't believe me, then follow me down memory lane.

At 64+, I am an old man in a country where 49 is life expectancy. I am on injury time. But, as the saying goes, "when an old man dies, you lose a library." This old head contains a library full of the history of the follies of these so-called technocrats in government.

Back in the early 1970s, a few young technocrats were in charge of the Federal Government. They were called "super-permanent secretaries or super perm secs, SPS". They were ably supported by others in other areas of government. Although, we had a military government, none had been to university - not even the "know-it-all" at Ota. So they allowed themselves to be guided by the well-educated SPS who attended Oxford, Cambridge and University of Ibadan, which, at the time, was every bit as good as Cambridge - until those running governments since 1966 got hold of it. They were called visitors.

They should never have visited and the universities would have been better for it. What sort of visitor is that who wrecks the joint? One of such highly confident young officers was Udoji. He would go down in history as the man who was called upon to conduct a salary review for the public service in Nigeria. Let me not bore you with tedious history. After a lot of work, the Gowon administration announced the Udoji awards as a result of which salaries and entitlements for workers were increased fourfold.

That, by itself, would have triggered hyperinflation which would soon make nonsense of the awards. But, each worker was then paid nine months arrears of the difference between the new and the old scales. Not contented with that next step in "squandermania", the government also allowed anybody who wanted to retire from service after ten years to go - with his full entitlements. Many promptly left, leaving the civil service a haven for novices. Now, you can see what damage technocrats can do.

Because we have always been poor, most Nigerians sang praises of government. The absurd demand for Gowon to "Go on with one Nigeria", after ruling for almost nine years, was deafening. Technocrats approved. All sorts of reasons were given why the new measure will soon place Nigeria among the world's leading economy.

With their pockets full of freshly mint naira, Nigerians went on a spending spree from Lagos to London and, soon, the nation was flooded with imports. Time magazine, in one edition, proclaimed "If you have anything to sell, Nigeria is the place to go. That is an economy that is bursting at the seams."

And indeed, the economy was booming as it never did before and has not done ever since. At one point, Nigeria was ranked 37th in the world in GDP. For the unwary, it appeared that the good times would last for ever. But, there were the voices pointing out that with our sudden over-dependence on crude oil that our prosperity might not last.

They were ignored. New factories, generally ill-considered, sprang up in Lagos, Kano, Jos, Kaduna, Port Harcourt, virtually all of which required imported raw materials and spare parts to function. Management was also thin on the ground and the new owners had not acquired the discipline of entrepreneurs in Europe and America. But, again, let's go on- without Gowon this time.

By, 1978, a "rich" and debt-free Nigeria was already discussing the possibility of asking the International Monetary Fund for a loan. Again, the technocrats got into the game. They then invented a term which, at the time, was mesmerizing. According to them, Nigeria was under-borrowed.

In plain terms, it meant that our country had no debt and that, to the technocrats, was not good enough. In short order, General Obasanjo's government proceeded to ensure that Nigeria was no longer under-borrowed. It took a loan of $2.8 billion from the international community, with assurances to Nigerians that the loan would be easily repaid. What was done with the $2.8 billion remains a mystery till today; although, Fela Anikulapo, the original Abami-Eda, gave us some idea through his immortal music.

More loans followed under the civilian regime of Shehu Shagari by Federal and State governments some of which are still being liquidated today. By 1982, Chief Obafemi Awolowo was already warning the nation that the economy was headed for a crash. The chief economic adviser to Shagari, a professor of economics and a technocrat, now a traditional ruler, called Awolowo a prophet of doom. The technocrats called him a rumour monger. But, the economy went into recession as predicted by that non-technocrat; Shagari was pushed out by Buhari/Idiagbon/Babangida.

Later, with the economy still in doldrums, IBB shoved Buhari aside and became the first military President of Nigeria in 1985. A few months after, IBB rolled out the Structural Adjustment Programme, SAP, which has, in one way or another, guided our economic policy ever since and which has ruined us more than any other economic policy since 1960. Yet, it was a technocrats delight. Unemployment went up to 40 percent; capacity utilization was as low as 38 percent and the currency became like tissue paper. From seventy kobo to the dollar, it went overnight to three naira to the dollar and today, it is N120 to the dollar.

Poor implementation

Yet, the technocrats applauded. By 2000, the World Bank was admitting that "some mistakes" were made in the way SAP was implemented. Yet, till today, none of the technocrats had admitted any error; a very costly error in terms of life and means of livelihood. At this point, there is a need to provide the names of some of the proponents of SAP. The only exception, and his was a half-apology, was Chief Falae, who, as presidential candidate in 1999, found SAP an albatross round his neck and tried to shift the blame to poor implementation by IBB's administration.

Chief Ernest Shonekan was the undisputed leader of the Organised Private Sector, OPS, at the time and a technocrat and he stands proxy for the group which earned less than 1% foreign exchange for Nigeria while consuming about 42% of it. Dr, now Professor, Pat Utomi represented the "card-carrying intellectuals" as well as the media wing of what for want of any name I will call The Association of Technocrats, the governor of Central Bank, now dean Alhaji Ahmed, as well as all the bankers were all for it. Every member of IBB's cabinet and not just the ministers of finance (he kept changing them -Okongwu, Alhaji Alhaji, Chief Olu Falae, Kalu Idika Kalu) but every minister either believed in the SAP or, at least, pretended to.

The programme itself, which was a poor carbon copy of what the International Monetary Fund wanted to impose directly, was advertised as a "home grown" initiative in answer to our needs. But, the content belied the words. It was a free market document such as the IMF and the World Bank were foisting on developing countries, especially those heavily indebted as Nigeria was, in order to have their debts rescheduled and to have access to more loans.

Let us pause at this point and summarise what actually happened in practical terms. Within the relatively short time of thirteen years, Nigeria had moved from the position of a net creditor to the world, 37th in GDP, to one of the most highly indebted nations on earth and occupying a position close to 110 on GDP scale.

The original $2.8 billion had accumulated interest which, in turn, had been capitalized and accumulated interest so that, by 1990, it was clear that only the miracle of another crude oil windfall could save us. But, every single step taken by the federal government had been made on the basis of advice offered by technocrats; the policies have often been implemented by technocrats and the lack of growth of the Nigerian economy had been the result of their interventions in government.

The names of those attending the 14th NESG might be different from those of the first, second or third, but they are clones of those who for years have held us by the jugular bending economic policies for the benefit of the few at the expense of the many. The capitalist model which they have held aloft has finally shown its inherent weaknesses; starting with America.

Among the reasons it had taken so long for the world to arrive at this point are: strong institutions; active and incorruptible judiciaries; where they exist, strict regulatory authorities; creativity and good governance -at least comparatively. Instead technocrats have forced Nigerian governments to accept an economic policy which our weak governance and lack of institutions cannot support. Let me give two examples.

If China or Malaysia or Poland imposes import prohibition on any item, it is unlikely that you would find it openly displayed for sale in any market. Thus, the market for it would be very small and it will be relatively expensive.

Even the village idiot knows that contraband can be found in any open market in Nigeria. As we are approaching Christmas, bangers, which were reportedly banned several years ago are exploded even inside police barracks.

At least I witnessed one last week. Similarly, unscrupulous Nigerian business men and women can travel to India or Taiwan and have substandard products manufactured for them for distribution in Nigeria. But no Taiwanese business man or woman will accept substandard cocoa from Nigeria for manufacture of goods for consumption in his own country.

Corruption is everywhere, admittedly. But, who has ever heard of a Frenchman or Indian, or America, or Brazilian embezzling money and bringing it to Nigeria. Yet, when we dupe the Nigerian Customs Service or collect bribe from Siemens, most of the money ends up abroad -not even here to oil the wheels of economic progress. Currency round-tripping, a crime of those well taught in market economy, ends up depositing money elsewhere.

That is why Scotland Yard is on the tail of the elite not the common man. Invariably, the model the technocrats have been imposing on Nigeria since the 1970s is one that would work well in a disciplined society and certainly not in a highly corrupt country where the corruption starts at the top and works its way down.

source:

Banking: Advice to depositors
Vanguard, Nigeria

The Lehman Bankruptcy , The New York Times.

The Lehman Bankruptcy
The New York Times reports on the collapse of the investment bank.

Lehman Brothers was founded in 1850 by two cotton brokers in Montgomery, Ala. The firm moved to New York City after the Civil War and grew into one of Wall Street's investment giants, despite period brushes with death. On Sept. 14, 2008, the investment bank announced that it would file for liquidation after huge losses in the mortgage market and a loss of investor confidence crippled it and it was unable to find a buyer.

Lehman's slow collapse began as the mortgage market crisis unfolded in the summer of 2007, when its stock began a steady fall from a peak of $82 a share. The fears were based on the fact that the firm was a major player in the market for subprime and prime mortgages, and that as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal.

As the crisis deepened in 2007 and early 2008, the storied investment bank defied expectations more than once, just it had many times before, as in 1998, when it seemed to teeter after a worldwide currency crisis, only to rebound strongly.

Lehman managed to avoid the fate of Bear Stearns, the other of Wall Street's small fry, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy. Lehman and Bear Stearns had a number of similarities. Both had relatively small balance sheets, they were heavily dependent on the mortgage market, and they relied heavily on the “repo” or repurchase market, most often used as a short-term financing tool.

But by the summer of 2008 the rollercoaster ride started to have more downs than ups. A series of writeoffs was accompanied by new offerings to seek capital to bolster its finances.

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