Banking, Finance and Insurance
Islamic Finance - The Gulf Perspective - View Presentation
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The Banking, Finance & Insurance Committee held a special breakfast meeting on January 14th 2008 to discuss the topic, ‘Islamic Finance – The Gulf Perspective.’ The guest speakers were Abdul-Haq Mohammed and Neale Downes, who are both partners at the Islamic Finance Group Trowers and Hamlins.
Mohammed gave an introduction to the principles of Shari’ah-compliant finance, discussing the basic sources of Islamic law, the means of interpretation, and the Shari’ah boards. Mohammed described the significance of fiqh al-mu’amalat, especially with regards its role in the protection of property. He also discussed the issue of riba, explaining the difference between profit and interest while asserting that interest is “strongly condemned.” Moreover, he gave brief explanations of significant topics in Islamic finance such as mudaraba, musharaka, murabaha, ijara, istisna’a, sukuk, tawarruq, and commodity murabaha. Mohammed called for the independence of Shari’ah boards, and concluded by affirming that despite major growth in the area of Shari’ah compliant finance, “the controversy remains.”
Downes discussed the topic of sukuk. He emphasized that sukuk “represent an undivided proportionate ownership interest in an asset with the corresponding right to the Islamically acceptable income streams generated by the asset.” Furthermore, Downes explained the drivers of market growth as well as the various types of sukuk, which include mudaraba sukuk, musharaka sukuk, ijara sukuk, murabaha sukuk, istisna’a sukuk, and salam sukuk. Finally, Downes addressed the obstacles to sukuk, citing that development in this area is constrained by the limited number of knowledgeable market participants, limited liquidity, the still limited size of the primary market, and the current lack of harmonized rules or financial standards.
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Central bank buoyant on reforms
AmCham’s Banking, Finance & Insurance Committee met on October 29 with guest speaker Tarek Amer, deputy governor of the Central Bank of Egypt (CBE), to discuss the topic of “Financial sector reform and economic development.”
Amer began by discussing the CBE’s strong balance of payments, supported by surpluses in both the current and capital accounts. He went on, however, to summarize some of the difficulties the bank has faced in recent history, citing past domestic challenges such as declining GDP growth, inflation, currency depreciation, the insolvent and fragmented banking sector, government dominance concerning banking and monetary policies, surging non-performing loans, foreign exchange backlogs and a deficit in the balance of payments.
To address such difficulties, Egypt has committed to reforming foreign exchange mechanisms and monetary policy, as well as restructuring the banking system including the CBE itself.
Discussing the foreign exchange market, Amer spoke of reforms carried out through the implementation of bold monetary policy actions – actions he says resulted in the disappearance of the parallel market, creation of a stronger interbank market, and the elimination of the foreign exchange queues and backlogs in hard currency. These reforms have renewed market confidence, he added.
In closing, Amer offered an optimistic economic overview of the past year, highlighting the improved balance of payments, rise in net international reserves, increase in the total value of exports and imports, and a sharp rise in FDI inflows.
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