Monday, 2 August 2010

"Why HK banks should offer facilities for Muslim residents", SCMP, 1 Aug

The Chief Imam of the Hong Kong, Kowloon Mosque and Islamic Centre has answered my letter of 11th July, as below and left (click to enlarge).
A couple of quick points:
I did not say he was a Mawdudi follower: just that the Islamist Mawdudi was the prime mover of Sharia finance, and that anyone pushing it was -- knowingly or not -- pushing an Islamist agenda.
I did not suggest that the Imam was promoting Sharia finance for all Hong Kong. Just that it is not mandated for Muslims (unless they wish to highlight the Islamist element mentioned above).
Donald Tsang has done more than "welcome" Islamic finance; he has said that changes to the law would be required.  And this would lead to increased cost for the rest of the Hong Kong.  See below, under the Imam's letter, for details of what these costs are: they include changes to tax laws, property laws, insolvency laws and security laws, part of "... the first step of what should be a long journey" -- with all these legislative and legal costs to be born by the community at large.
In the UK, the FSA has said it would neither promote nor hinder Sharia finance, as it was not a religious regulator.
BTW, online the Imam's letter has received an average of 1.5 stars out of 5, whereas my earlier letter had 4.5 stars...

Letter of 1st August: Muhammad Arshad, Chief Imam Hong Kong, Kowloon Mosque and Islamic Centre
"Why HK banks should offer facilities for Muslim residents"

I refer to Peter Forsythe's letter ("It is radical sharia law which has ruled against interest for Muslims", July 11). He referred to my comments in the report ("Islamic finance abroad, not for HK homebuyers", July 4). Let me clarify that I am not Sayyid Abul Ala Mawdudi's follower.
I did not demand that the Islamic financing system should be applied to the people of Hong Kong, but we would like banks to offer facilities for Muslim residents of the city, as they do in Britain. Chief Executive Donald Tsang Yam-kuen has on several occasions said that he would welcome Islamic finance in Hong Kong.
Islamic finance is a facility for those who, because of their religious beliefs, are not satisfied with the conventional banking system. It has been proved that Islamic banking is safe for customers and banks. That is why during the recent global economic turmoil Islamic banks remained safe.
Islamic banking is necessary for Muslims who do not want to be involved in usury or interest. Mr Forsythe differentiates between usury and interest: it is only a difference of words. In terms of Islamic principle, usury cannot be determined on the subjective basis of percentage.
Since Mr Forsythe addressed my affiliations, I would like to clarify. I grew up in Pakistan and studied in Pakistani University but I never joined Jamat Islami or Islami Jamiat Tulaba. I am a simple Muslim who believes in coexistence and harmony with every fellow human being as Islam teaches us. Everyone should enjoy the freedom to practise their religion.

About costs of Sharia Finance: From “Demystifying Islamic Finance”, Zaid Ibrahim and Co, 2010. P.23. [pdf].  Bolding is mine.

Misconception 14: Requires minimal changes to legal and regulatory framework
Islamic finance does not exist in a vacuum; it requires alignment with and support from the whole legal and regulatory framework. This means, while it is important for the banking and financial laws of a country to recognise and accommodate Islamic finance, for example, through a specific legislation, this is far from sufficient in ensuring that the Islamic financial contracts will be effectively enforceable.
At the minimum, other areas of law that may have to be amended to accommodate Islamic finance would include tax laws (for neutrality of tax treatment), property laws (for ability to undertake transactions involving real estates and create valid collaterals on them), insolvency laws (to enable Islamic financial institutions to enforce its claims against debtors and defend itself against creditors as may be needed), and securities laws (for the Islamic financial institutions to be able to offer or trade instruments that are Shariah-compliant).
As Islamic finance transactions becomes more internationalised, proper laws would need to be put in place to establish reciprocal enforcement of foreign judgments from across different jurisdictions. Clarity in the law would contribute immensely in terms of instilling public confidence in the financial system, and remove uncertainty as to whether an Islamic financial contract will eventually be enforceable in court in case there is a dispute.
Furthermore, it must be duly recognised that the forum for resolving disputes arising from Islamic finance contracts, whether a court of judicature or court of arbitration, must be adequately equipped with competent personnel as well as comprehensive legal infrastructures to enable it to precede over such cases smoothly and efficiently. The judges, arbitrators, attorneys, etc. handling such disputes must be very well-trained in order to ensure adequate competence and professionalism.
It must be borne in mind that the real test of the effectiveness of law is in its enforcement. Therefore, besides enacting and amending laws, authorities shall give adequate attention in building capacity for law enforcement.
Hence, it is incorrect to assume that Islamic finance requires only minimal changes to the financial laws and regulations, as indeed this is only the first step in what should be a long journey. At most, an Islamic Banking Act or Islamic Finance Law can be considered as the impetus for a country’s Islamic finance industry, but indeed the whole framework can only be feasible if alignment with and support from the rest of the legal system are also stitched together.
In countries where a comprehensive review and reform of the whole legal and regulatory framework is not undertaken, they will find their Islamic finance industry to remain surrounded by legal landmines.