Wednesday, May 20, 2009

Why Islamic banks escaped crisis: Capital FM

Updated 20days 23 hours 6 minutes ago

NAIROBI, Kenya, Apr 28 - The current global economic downturn would never have happened if the banking sector had pegged its business on the Islamic banking, an industry player said on Tuesday.

Gulf African Bank CEO Najmul Hassan says none of the 375 banks that practice Islamic banking globally has been affected by the crisis so far.

“The reason for this is that Islamic banking does not go into the products that got these banks into this downfall. Look at Societe Generale, it lost billions in speculative transactions; Somitu Corporation lost because it was speculating on prices of copper,” Mr Hassan explained.

“These are the very things that Sharia banking disallows.”

Mr Hassan noted that Islamic banking is based on neither speculation nor interest but real growth.

“All the trading that happens in this world is not interest-based; there is real trading taking place. Some assets are purchased, you add value, and you sell them out. That is what Islamic banks do,” he said.

Mr Hassan explained that Islamic banks buy assets, add value and sell them on deferred payment and make their profit from taking part on real economic activity in a society as opposed to conventional banks which makes money on fractional lending which he described as ‘paper business’.

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