ON THE EXAMPLE OF THE PERSIAN GULF STATES
Postgraduate student of the Institute of Africa of the Russian Academy of Sciences
Islamic finance Keywords:, GCC, sukuk
The fundamental difference between Islamic finance and traditional finance is the prohibition of all forms of interest payments. In addition, it is necessary to mention a different basis for risk allocation, namely: the client and the bank jointly bear the risks of any investment on previously agreed terms, and also share both profits and losses. An Islamic bank is prohibited from making interest-bearing loans to other banks, and its investment activities must comply with Sharia law.
In recent decades, the Gulf States have achieved impressive results in comprehensive modernization, including in the financial sector. The authorities of the Arabian monarchies have learned from the periodic fluctuations in oil prices, and therefore, since the 1980s, they have been making efforts to diversify their economies, develop the manufacturing industry and services, including financial ones.
In a relatively short period of time, the countries of the Cooperation Council for the Arab States of the Persian Gulf (GCC) managed to create a fairly competitive financial services industry on the world market. However, it is worth noting that the complex formation of national financial and economic systems is not fully completed.
The rapid development of the Islamic banking system since the mid-1970s has been a consequence of rising oil prices.
Despite the fact that the introduction of the Islamic financial model began much later than in Iran or Malaysia, the growth of the Sharia-compliant financial industry in the GCC in recent years has been impressive. More than half of deposits in Saudi Arabia and about 40% in other GCC states are managed under sharia law1.
Significant growth in Islamic finance in the GCC was achieved, among other things, thanks to state support, the scale of which varies significantly in different countries of the Persian Gulf. For example, in Oman, the State has virtually no support for Islamic finance, while officials in Bahrain and Kuwait are very supportive of this type of activity. It is noteworthy that in Bahrain, thanks to state support, the largest Islamic financial institutions of the GCC operate: 24 Islamic banks and 11 takyaful companies*.
THE ROLE OF ISLAMIC BANKS
In the banking segments of the GCC economies, Islamic banks are quite important.2 According to various estimates, they account for from 13 to 26% of assets, deposits, and loans. In recent years, most of the major traditional banks of the GCC countries have established special branches based on Sharia law. And the largest bank in the Arab world, National Commercial Bank (Saudi Arabia), has been accepting deposits exclusively in accordance with the economic principles of Sharia law since 2004.3
According to the World Bank, more than 300 financial institutions already offer Islamic services worldwide.4 It is also important that banks such as Citigroup, Deutsche Bank, Standard Chartered, and ABN AMRO not only open their new branches that provide Islamic financial services, but also form their own so-called Sharia councils that ensure that the work on providing "Islamic"financial services is carried out. the service was in accordance with religious regulations.
It is worth noting that the authorities of Saudi Arabia, the "cradle of Islam", at one time were reluctant to encourage the development of Islamic banking in the Kingdom. For example, Al-Raji Bank was granted the right to operate only in 1987, although it was established in 1978. Banks such as Dubai Islamic Bank, Kuwait Finance House, and Bahrain Islamic Bank have been operating in their respective countries since 1975, 1977, and 1978, respectively.
In addition, the Central Bank of Bahrain and the Central Bank of Kuwait are actively involved in the integration of Islamic banks into the domestic financial system.
Non-interference on the part of the state allows private entities to develop their business in the GCC and help establish the Islamic financial market as a whole. Islamic banks in the Gulf States are considered more innovative in terms of developing new banking products than their Iranian counterparts. For example, Islamic banks in this region provide much more attractive services, which may be due to the need to compete with traditional banks in their domestic markets.
However, given the complexity of sharia-structured financial products, the need for state intervention cannot be ignored. Sharia councils function as mandatory bodies for monitoring and supervising the work of the financial sector. However, there is no standardization of fatwas issued by these councils yet.
For the entry into force of a transaction or contract, permission from the religious council of the ban is required.-
* Takyaful-company - an insurance company whose activities comply with Sharia law.
ca 6. Banks in the GCC were allowed to make extensive use of fatwas that promote business development. It is worth noting that most of the fatwas relate to Islamic sukuk bonds*, which means that it leads to a wide sale of Islamic products in the region. Unlike traditional Western credit institutions, organizations and banks that issue sukuk receive their interest not on the amount issued, but on the income received by the borrower.7 It is noteworthy that sometimes fatwas issued by different Sharia councils of Islamic banks on the same issue differ significantly from each other.
Islamic banking is already considered one of the main areas of financial activity not only in the Arab states of the Persian Gulf, but it is experiencing rapid growth around the world.
For example, by 2010, 1/5 of all banks in Malaysia will meet the requirements of Sharia law 8. Due to the fact that the mortgage crisis that led to the global financial and economic crisis in 2008 did not affect the Islamic banking system, this industry has gained special confidence. Currently, in many Muslim countries, Islamic banks successfully compete with the traditional banking sector.
Branches of Islamic banks are already operating in 75 countries9. Experts expect that in the coming years, the expansion of the customer base using Islamic banking services may occur due to entering the markets of European countries. Islamicbank of Qatar, Kuwait Finance House and Islamicbank Al-Baraka of Bahrain have applied for accreditation in France 10.
ISLAMIC INVESTMENT ACTIVITY
In addition to the usual day-to-day operations, deposit programs and consumer loans, Islamic banks in the GCC region also act as investment banks. Investment banking is widespread in the Persian Gulf mainly because it is the most compliant with Sharia law requirements. Most of the income of investment banks is generated from contributions, rather than from loans and interest accrual.
In addition, the nature of investment in the Gulf region differs from the generally accepted investment system in the rest of the world. Thus, a significant part of Islamic investment activity is accounted for by syndicated * * financing and lending.
However, the lack of organizational skills and experience led to the fact that the organizers of the so-called "Islamic syndicates" were large international banks, such as HSBC, Barclays Capital and Standard Chartered.
Today, Saudi Arabia is the most active participant in Islamic syndicated project financing in the region. The UAE is in second place.
According to the International Financial Service, London (IFSL), Iran is currently the world leader in Sharia-compliant financial assets ($154.9 billion). This is followed by Saudi Arabia ($70 billion) and Malaysia ($65.2 billion). The top ten also includes Kuwait, Bahrain, Pakistan, Lebanon, and Turkey. The UK ranks 9th in the world in terms of "Islamic" assets ($10.4 billion). This is the only European country where this figure exceeds $10 billion 11.
Islamic financial institutions have evolved into reliable alternative sources of capital.
While the impact of the financial crisis was quite severe for traditional banks, Muslim banks were much less affected.
Dr. Abbas Khalaf Qunfood, an expert on the Arab East, notes that "money (invested in Islamic banks ) works in the real sector of the economy, and not in paper mythical projects, as is customary in the West." 12
A kind of confirmation of these words can be seen in the statement of the Deputy Minister of Finance of Malaysia, Muhammad Nur Yakup, in which he expressed the opinion that holders of Islamic bonds were protected from the consequences of the global credit crisis, and none of the Islamic banks in his country suffered from large-scale write-offs on mortgage loans. 13 In addition, in his opinion, Interest in Islamic financial instruments is growing rapidly not only in Malaysia, but also in China and South Korea.
ISLAMIC FINANCE IN THE MODERN ECONOMY
The influence of Islamic financial institutions on the global economy is growing every year. According to the calculations of the world-famous rating agency "Standard & Poor's", at the beginning of 2008, about $ 750 billion. they were governed in accordance with Sharia law 14. This is especially interesting to observe in the case of the United States and Great Britain, which implement certain Islamic principles in their economic models. Thus, the Texas oil company East Cameron Gas Company borrowed $165 million on the basis of sukuk under the guarantee of its hydrocarbon reserves in the Gulf of Mexico 15. Investors from the Arab states of the Middle East, together with partners from the United States, purchased the production of Aston Martin cars from Ford for $848 million, and at the request of the Kuwaiti side, the transaction was carried out in accordance with Islamic laws. 16 And the French bank BNP Paribas and Natixis Transport Finance concluded a contract with the company AirAsia Islamic finance lease agreement*** - ijara in the amount of $336 million about finance-
* Sukuk (singular-sakk) - securities that certify the ownership interest in the underlying asset that generates profit (usually from leasing), as well as the right to receive the profit that this asset generates.
** A syndicated loan is a loan raised by a single borrower from multiple sources.
*** Financial leasing - an operation for the special acquisition of property in ownership and subsequent delivery of it for temporary use.
purchase price of 8 Airbus 320-200 aircraft 17. The use of" non-standard " financial instruments is dictated by the desire to attract investors from the GCC.
Thus, Islamic financial institutions become an insignificant component of the global economic system.
According to the Chairman of the Central Bank of Bahrain Rashid al-Maraj, "the crisis in the US mortgage market will attract investors who want to" shift " from conventional financial instruments to Islamic ones, given the difficult situation with pricing for Western assets."18. He also suggested that Islamic banks would be a "safe haven" for Western investors.19
According to Standard & Poor's experts, the assets of Islamic banks may grow to $4 trillion by 2013.20 Of course, the global financial and economic crisis has affected the activities of Islamic banks, due to the fact that consumer demand in the real economy has decreased. But in general, the profit of such banks decreased by only 10-15%, which is significantly lower than the indicators of Western banking institutions. "No Islamic bank failed during the crisis or required significant government assistance," said Professor Wilson, author of a report on the Kuwait Development Program at the London School of Economics and Political Science (LSE) .21
"Based on the results of 2008, we can say that the largest Islamic banks are in a much more stable financial position than the largest American ones. In particular, the four largest Islamic banks on average showed twice as much return on sales as the five largest US banks. Also, Islamic banks have significantly higher return on assets and capital, " says financial analyst Zarina Saidova 22.
"For a Westerner, Islamic financial products are somewhat similar to ethical financial products, "says Stefan Szumanski, professor of economics at Cass Business School in London. "There is a demand for investment instruments that are morally correct, and Islamic finance is the Islamic version of such investment." 23
However, according to some experts, wider Sharia lending is not possible due to some political factors. "Increased attraction of Islamic investment is hindered by the existing political instability in the Middle East. All this makes it difficult for European businesses to attract loans from Muslim financial institutions, " says Veronique Risch-Flor, Head of European Economic Research at Societe General24.
The Arabian monarchies plan to continue their policy of economic rapprochement by creating a monetary union (the free trade zone was established in 1983, the customs union in 2003, and the common market in 2008). The issue of creating a monetary union and a single currency in the Persian Gulf is also being discussed, but the financial market of the region remains divided.
* * *
Currently, studying the experience of the Islamic banking system is extremely necessary. It is important to note that if traditional Western banks warned each other about all risks, as required by Sharia law, it is likely that the percentage of "bad" loans would be significantly lower.
We can agree with the widespread opinion that any crisis is an objective phenomenon that can be repeated periodically and often allows the economy to recover, free itself from the ballasts that prevented it from developing energetically and harmoniously.25
It is noteworthy that in modern conditions, ethical standards are beginning to gain importance, especially in the corporate environment. Thus, there is reason to believe that in the near future, Islamic financial institutions based on the principles of sharia law will continue to expand and spread around the world.
Amir Riman, Nazim Ali. 1 Islamic finance conquers the global market - http://www.hbr-russia.ru/issue/36/76
2 With the exception of Oman, where Islamic banks are not yet represented.
Amir Riman, Nazim Ali. 4 Edict op.
5 Fatwa (Arabic) - a definition that is not subject to revision, discussion and criticism, issued by the religious council functioning at each Islamic bank, on the compliance of a particular transaction (contract) with the norms of Islam, in particular, the rules and customs of Sharia. See: Pavlov V. V. Islamic banks in Islamic Financial Law.Moscow: "Ankil". 2003, p. 72.
6 See for more details: Pavlov V. V. Edict op.
7 See for more details: Bekkin R. I. Islamic Economic Model and Modernity, Moscow: Marjani Publishing House, 2009, p. 302.
Amir Riman, Nazim Ali. 8 Edict op.
9 Finance under the shadow of the crescent - http://www.halalpages.ru/analytical%20survey/finansi/
10 Les banques islamiques arrivent en France - http://www.leparisienir/economie/les-banques-islamiques-arrivent-en-france-27-11-2008-323 377.php
12 Is it easy to be an entrepreneur? // Delovoy kvartal-Nizhny Novgorod, N 13 (111), 29.06.2009, p. 24.
13 Arabs benefit from the global financial crisis - http://www.halalpages.ru/analytical%20survey/arabi/
Amir Riman, Nazim Ali. 14 Edict. op.
Nikonov A. 15 Global business is just as difficult to do without Islamic investment as it is without Middle Eastern oil - http://www.islam.ru/pressclub/smi/slobiz/
Amir Riman, Nazim Ali. 16 Edict. op.
17 Finance under the shadow of the crescent moon...
18 The Arabs win...
20 Breakthrough of Islamic banks in Kazakhstan is predicted for the end of next year - http://www.zakon.kz/122752-proryv-islamskogo-bankinga-v.html
22 Islam's Lesson for the Global Financial System - http://halalpages.ru/analytical%20survey/adfgdfg/
23 Islamic Finance provides Universities with additional income, 7.08.2009 - http://www.halal.kg/main/bank/1534-islamskie-finansy-obespechivayut-universitetam.html
Nikonov A. 24 Decree. op.
Rafikov Ildus. 25 Global financial crisis from the point of view of the Islamic economy - http://www.islam.ru/pressclub/tema/clofikroz/
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