THE BORDERLESS ECONOMY FROM ISLAMIC FINANCE PERSPECTIVE

PRESENTED BY MUHAMMAD ZAHID ABDUL AZIZ,

MALAYSIA

3RD OIC-ASIA TRADE & ECONOMIC FORUM 2014 KUALA LUMPUR

NOVEMBER 2014

1

A BANK USED TO BE BRICK AND MORTARS OPERATING WITHIN A SPECIFIED BORDER. WHILST THIS IS TRUE, MANY OF CURRENT BANKING PRODUCTS CAN BE USED IN A BORDERLESS WORLD. FOR EXAMPLE AN ATM MACHINE CAN GIVE YOU CASH IN ANY PART OF THE WORLD. FOREIGN EXCHANGE CAN BE BOUGHT IN ANY BRANCH OF THE WORLD CREDIT CARDS CAN BE USED IN ANY PART OF THE WORLD

2

HOWEVER THE BORDERLESS ASPECTS SEEMS TO BE CONFINED PRINCIPALLY TO RETAIL PRODUCTS WHAT ABOUT CORPORATE PRODUCTS? CAN A COMPANY OBTAIN A LETTER OF GUARANTEE FROM AN OVERSEAS BANK WHO HAS A RELATIONSHIP WITH ITS LOCAL BANK? CAN A COMPANY OBTAIN A WORKING CAPITAL, TERM FACILITY, LEASING/IJARAH OR ANY CORPORATE FACILITY FROM AN OVERSEAS BANK WHO HAS A RELATIONSHIP WITH ITS LOCAL BANK? CAN A COMPANY OPERATE A CURRENT ACCOUNT IN AN OVERSEAS BANK BASED ON THE OVERSEAS BANK’S RELATIONSHIP WITH ITS LOCAL BANK?

3

IT SEEMS MUCH POSSIBLE AND MAY ALREADY EXIST IN INTERNATIONAL INVESTMENT BANKING? CAN A COMPANY IN ENGLAND ENGAGED AN ARRANGING BANK IN MALAYSIA TO RAISE AN INTERNATIONAL SYNDICATION FOR ITS PROJECT IN SOUTH AFRICA WITH PARTICIPANTS MAINLY FROM MIDDLE EAST? CAN A COMPANY IN GERMANY RAISED A SUKUK BY ENGAGING AN ARRANGING BANK IN DUBAI FOR ITS PROJECT IN LATIN AMERICA FUNDED MAINLY BY BANKS IN ASIA? CAN A MERCHANT BANK IN AMSTERDAM BRING TO LISTING ITS CLIENT IN KOREA AT THE NEW YORK STOCK EXCHANGE? CAN AN ASSET MANAGER IN EIRE RAISED A FUND IN THE MIDDLE EAST FOR PROJECTS IN ASIA? IF THERE ARE STILL REGULATORY HURDLES TO THESE, THEN WE HAVE NOT YET REACHED A BORDERLESS WORLD FOR FINANCE.

4

IN MALAYSIA IT IS REPORTED THAT BECAUSE OF THE EASINESSS OF BORDERLESS INTERNET PAYMENTS BETWEEN COMPANIES INTERNATIONALLY, DEMANDS FOR LETTERS OF CREDIT FACILITIES FROM BANKS ARE DWINDLING. WILL THIS LEAD TO INTERNATIONAL TRADE CONDUCTED WITHOUT THE NEED FOR BANKS AS INTERMEDIARIES? THE HANSEATIC LEAGUE OF GERMAN INTERNATIONAL TRADERS THRIVED FOR 4 CENTURIES (13TH-17TH CENTURY) WITHOUT BANKS IN INTERNATIONAL TRADE. EQUITY INVESTING AND VERY DIVERSIFIED INVESTMENTS IN NUMEROUS SHIP CARGOES WAS THE SOLUTION. WITH THE CURRENT BORDERLESS WORLD OF INTERNET PAYMENTS AND INTERNET ENGAGEMENTS BETWEEN TRADE PARTNERS WILL WE SEE THE DEMISE OF BANKS IN INTERNATIONAL TRADE?

5

IN THE BORDERLESS WORLD OF INTERNET PAYMENTS DO WE STILL NEED AN INTERNATIONAL RESERVE CURRENCY TO SETTLE INTERNATIONAL TRADE? CAN NOT INTERNATIONAL TRADE BE SETTLED ALL BY LOCAL CURRENCIES? CAN GOVERNMENT INSTEAD OF BANKS PLAY THE INTERMEDIARY ROLE IN INTERNATIONAL TRADE TO PAY THEIR EXPORTERS WITH LOCAL CURRENCY? CAN GOVERNMENT INSTEAD OF BANKS PLAY THE INTERMEDIARY ROLE TO ACCEPT PAYMENT FROM THEIR IMPORTERS IN LOCAL CURRENCY AND EFFECT PAYMENT TO THE CORRESPONDING FOREIGN CENTRAL BANK IN THEIR LOCAL CURRENCY?

6

CAN OIC NATIONS STOCK OF GOLD BE KEPT CENTRALLY IN ONE AGREED MUSLIM CAPITAL CITY, AND INTERNATIONAL TRADE BETWEEN OIC NATIONS SETTLED VIA BOOK ENTRIES OF NET INTERNATIONAL TRADE SET OFFS? WHY DO WE NEED AN INTERNATIONAL RESERVE CURRENCY WHEN WE CAN BYPASS THAT THROUGH BROTHERLY MUSLIM TRUST? CAN WE EXTEND THIS ARRANGEMENT TO FRIENDLY NON OIC AND NON MUSLIM COUNTRIES? IN THE MATURING OF THE INTERNATIONAL BORDERLESS ECONOMY IS INTERNATIONAL TRADE WITHOUT BANKS AND WITHOUT AN INTERNATIONAL RESERVE CURRENCY A PROBLEM? OR IS IT ACTUALLY THE BOON THE WORLD INTERNATIONAL TRADE AND THE WORLD ECONOMY IS WAITING FOR?

7