090114_socially Responsible Banking

 

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Sociallly Respo onsible Banking? B

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Malaysia a and the Asia a Pacific Rim. For

By Danie el Chandrana ayagam

our edittorial content, clickhere. The e

As the year turns jus st fourteen da ays old, more e and more people p and

Digest is also currentlly a free

business ses are turnin ng to centuriies old religio ous tenets fo or the

distribution electronic c digest, so fee el

regulatio on of their fin nancing. Proffessor Bala Shanmugam S of o Monash

free to s send your conttent or press

Universitty Malaysia was w reported recently to have h said,

Islamic finance is also kknown as socia ally responsib ble banking  because w we tend to thin nk of what thee consequencces are of  this. It’s no ot just lending g money for tthe sake of len nding and  making prrofits off of this. 

releases s to us at edito or [at] csrdiges st dot com m.

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Understa andably, with h crumbling financial f marrkets, an ethical

Searrch

financiall framework based on fairness sounds desirable. As A such, the grow wth of Islamic c Finance in institutional finance mark kets is

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unsurpriising. In November 2006, Ethical Corp poration repo orted that hydrocarbons conglo omerate, Saudi Basic Indu ustries Corpo oration,

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issued a three billion n Saudi riyal (USD800 ( mill) Sukuk, Isla amic

Finance’s equivalent of a bond. At A that time, it was also sttated that F Hous se was to issu ue a USD200 0 mill Sukuk for f a Kuwait Finance Chinese company fin nancing expa ansion of a po ower plant.

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CSR Digest. All rights reserved, ©2008 C except w where indicated. Copyright C Money by Psyrax

More rec cently in Octo ober, Malaysia’s central bank b governo or, Dr. Zeti Akhtar Aziz, A stated, during her keynote k addre ess at the Sta ate Street

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Islamic Finance F Cong gress 2008 in n Boston, tha at the outstan nding

amount of Islamic prrivate securitties amounted to USD79 bill. b She

also add ded that the number n of Sh hariah-based d unit trust fu unds had increased to a net as sset value of over USD5.2 bill.

of Devian nt Art visuals rem main with the authors/artists.

 

Why? According to Malaysia’s central bank governor, Dr. Zeti Akhtar Aziz, the strengths in Islamic Finance are derived from Shariah principles. During her keynote address at the State Street Islamic Finance

Congress 2008 in Boston, Dr. Zeti stated that these principles, based on Islamic law, “require that the financial transactions be accompanied by an underlying productive activity, thus giving rise to a close link between financial and productive flaws.”

Because gambling and the exacting of interest are prohibited, Islamic financiers are required to innovate in order to come up with comparable instruments to lend, invest and insure. The instruments for these activities are usually based on contracts that require both parties to share profit and loss equitably.

Dato’ Vaseehar Hassan Abdul Razack, Chairman of Unicorn International Islamic Bank, was reported to

have said that Islamic banks “will follow through exactly what you want to do and be your partner

holding your hands from day one, until the project is completed, and then make sure it is properly

completed and that the cash flows are generated according to what they are projected, and then they share an equitable proportion of the profit.”

Money for? by Ferruh

This sounds like a good enough reason to consider Islamic banks as conducting their corporate social

responsibility in the course of their business.

There’s more… It is said that Islamic laws covers the entire social order. Islam protects the right to private property, but these rights should also take into consideration the rights of others in the community, including

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the right to proper natural resources. Because these natural resources, like water, forests, air and

sunlight, are the property of society (and the world at large), an individual is held accountable for its use or repair if she causes harm to them.

 

It has been noted that some Islamic Finance products provides better deals than those of conventional banking. Managing Director of DVA Consulting Sdn Bhd, Daud Vicary Abdullah, was reported to have

said, “… an example that I often use is a deposit-based product, where you are penalised if you break a fixed-term deposit in the conventional world and you get less interest. But in the Islamic world, you get the profit that you’re due, up to that point in time when you break the deposit.” Formerly the Chief Operating Officer of Asian Finance Bank, Mr. Daud was also quoted on INSEAD Knowledgeas saying,

There is a significant potential for socially and ethically responsible financing … not  just in terms of ethics, but also the opportunity in terms of the structure in  development of some of the green funds, waste recycling, green forms of energy, and  so on. There is under the tenets of Islam a clear alignment between what Islam  represents and what is ethically and socially responsible. 

Credibility Problems On the basis of the tenets discussed above, it can be said that Islamic Finance products, through their very nature, are eco-friendly. However, there are some challenges to Islamic Banking. For one thing, it has been suggested by industry practitioners to the CSR Digest that some Islamic Finance Institutions possibly “close one eye” as to whether or not what they are funding will cause detriment to the environment.

Furthermore, Ethical Corporation comments in its Special Report, “Islamic finance - Ancient values in a

global economy” that the “lack of transparency even on contractual compliance matters is

disquieting”. Ethical Corporation pointed out in 2006 that Shariah board members, at least in the UK, are paid by banks to deliver fatwah (Shariah rulings). Although, institutional clients might be advised

on the reasons behind the rulings, private consumers and affected communities were usually just left

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to accept the fatwahs made by people “chosen and paid for by the other team”.

Money Money Money by Ivy046

 

Dr. Zeti pointed out, “Against a backdrop b of an a increasing gly uncertain global environment, Islamic

finance, as a form off financial inttermediation in the intern national finan ncial system, has continued to be viable an nd competitiv ve.”

Norton Rose’s R Head of Islamic fin nance and an n adviser to the British go overnment wa as reported to t have said onthe Huffingto on Post:

Islamic finance does dem monstrate go ood banking b behavior that has been perrhaps lost  ast 10 years or so… Islamic banking is sa aying we are cclose to our cllients and  over the la we’re onlyy going to do g genuine transsactions wherre we can seee the asset, wee  understand the asset, w we can make a an assessmen nt of that asseet: whether itt’s  a ship or an a aircraft they w will go and have a look at tthe business. IIt’s giving  financing a guidance a as to what ba anking should  d be.  A very ta all order, and d the world watches.◊ w

Written by y Daniel Edit January 14 4, 2009 at 11:15 am Posted in CSR Digest Edittorial, Marketplace, Transpare ency Tagged with ethical finan nce, Islamic Finance, Malaysia,, reporting « Stop the e CSR Spin

One Re esponse to 'Socially Re esponsible Banking?' Subscribe e to comments s with RSS or TrackBack T to 'S Socially Respon nsible Banking?'. 1.

As you kn now a rough co ousin to Islamic banking and d finance in th he west is ethic cal investing. I got interested in ethic cal investing so ome forty yearrs ago as I beliieved that whe en we invest in n a company we w share in the respo onsibility for th he activities of the company as well as participate in the outcomes of tthe company’s s activities.. Therefore any yone valuing their t personal or spiritual growth has to ta ake these thing gs into accoun nt when investing. I also believe that if eve eryone does in nvest according g to their personal values, th hen, since so m many of core values v are alike — and are supporrtive of higher ideals — that in the long run, only compa anies employin ng these higher values will truly prosper. For anyon ne interested I have a site that covers the latest l global news and resea arch on ethicall investing, as well as occasiona al reports on Is slamic finance e. It’s at http:// /investingforth hesoul.com/ Best wishes, Ron Robins

Ron Robins 15 Jan 09 at 12:44 am Ed dit

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