Islamic Finance and Halal Currency as an enabler for Halal...

Dato’ Yusli Mohamed Yusoff

13 July 2012

Islamic Finance and Halal

Currency as an enabler

for Halal Trade

Islamic Finance and Halal Currency as an enabler for Halal Trade

Introduction

● What role for Islamic Finance & Halal

Currency in development of Halal Trade?

● Global Islamic Finance Industry estimated

at USD 1.4 trillion (GIFR 2012).

● Global Halal Industry estimated at USD 2

trillion (AIF 2012).

Islamic Finance evolution

● Islamic Finance evolved out of need for

alternative financial products catering to

Muslims.

● Promotes transparency, justice, fairness and

honesty in commercial transactions.

● Prohibits unfair/oppressive practices like riba

(interest/usury), gambling, cheating as well as

uncertainty in contract.


Islamic Finance growth potential

● Growing Muslim middle class population.

● Gaining wider acceptance due to commercial

viability & universal values as well as disillusionment

with conventional economic & financial system.

● Can provide guidelines for managing a good

economy, stimulating development, realising

socio-economic justice and promoting employment

and stability.


Islamic Finance global growth

● Leading Islamic financial centres are Malaysia &

the Middle East - Iran, Saudi Arabia, UAE, Kuwait,

Bahrain.

● UK is leading developed western countries in Islamic

Finance. Others such as Japan, France, Germany also

looking at reforms to facilitate Islamic Finance.

● Non Muslim customers attracted to ethical &

environmental basis of Islamic Finance.


Islamic Finance new markets

● Asia has largest Muslim populations mainly in

Indonesia, Pakistan, Bangladesh and India.

● New non - Asian markets also growing -

Russia, CIS countries, Africa, USA have sizable

Muslim populations.

● Kazakhstan became first CIS country to

introduce legislative amendments for Islamic

Finance.


Islamic Finance potential

● Need to look beyond asset financing & provide

more support for real trading activity.

● To play a more developmental role as concept of

sharing risks & returns can help protect &

nurture businesses.

● Can help ensure production of Halal goods are

funded in a Halal way as currently most Halal

producers are funded by conventional finance.


Halal currency

● Conventional banking is a riba (interest/usury)

based system where central banks can diminish the

purchasing power of paper money. This is not

Islamically or morally acceptable.

● According to Islamic law, the Islamic Dinar is a coin

of pure gold and the Dirham is a coin of pure silver.

Precious metals cannot be inflated by printing more

money nor be deflated by government decree.


Halal currency in use

● Certain communities are using gold dinars &

silver dirhams in commercial transactions,

payment of zakat as well as for savings.

● Dr Mahathir had urged Muslim countries to use

gold dinars for international trade as a means to

reduce impact of excessive speculation in

currency trading on the values of currencies.


Conventional currency

● Paper money has no intrinsic value.

● Exchange rates are arbitrary and subject to

manipulation by currency traders.

● Dr Mahathir : Currency trading is unnecessary,

unproductive and immoral.

Manipulative speculative trading of national

currencies led to economic chaos during the

Asian Financial crisis in 1997/8.


Halal currency potential

● Gold dinar has definite value based on global

demand for the precious metal.

Fluctuation in gold prices will be less volatile

and risk of manipulation will be minimal.

● Dr Mahathir : World trade can actually expand

with the use of the gold dinar as cost of business

will be much reduced as the need to hedge

currency fluctuations would practically

disappear.


Islamic Finance & Halal Trade

● Excess liquidity in Islamic Finance needs to

find new sectors to generate good returns yet

remain shariah compliant.

● Emerging convergence of Islamic Finance &

Halal Trade as both belong together – they

address same market, share same values and

same lifestyle.


Halal Trade

● Islam permits & encourages Halal trading

activities.

● Halal trade covers entire spectrum of Halal

products & services.

● Products should be produced in a Halal way &

sold in Halal venues in accordance with Halal

transactions with Halal currencies.


Halal Trade growth potential

● Represents a very large & rapidly expanding

market segment with 2 billion consumers.

● Halal food is example of impact of Muslim

consumption on global food industry.

● Food producers especially meat producers

have made conscious decision to go halal to

meet growing demand.


Halal Trade & Islamic Finance

● Most Halal producers are non-Muslim & have

developed their businesses using conventional

financing.

● Halal trade has developed independently of

Islamic Finance but signs of emerging convergence.

● Opportunity to develop a Halal Economy based

on Islamic Financial principles and qualities of

Halal.


Conclusion

● Islamic Finance should seriously look at Halal

Trade as demand outstrips supply in sectors

like Halal food with annual growth rates of

15- 20%.

● To ensure the whole production process for

Halal goods is Halal, the source of financing

should also be Halal ie Islamic Finance.


Conclusion

● Islamic Investment in the Halal food sector

would boost agricultural output in poorer Islamic

countries, help investment in promising Halal

food SMEs as well as participate in some of the

global food players.

● This would be a way for Islamic Finance to

become a real enabler and driver in the real

economy.


THANK YOU

Islamic Finance and Halal Currency as an enabler for Halal...

Documents

Transcript of Islamic Finance and Halal Currency as an enabler for Halal...