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Rediscovering the Islamic Banking Model for Stock Market Development

17 March 2007 - Features - Editor

There used to be a time when the term stock market was almost synonymous with Exchanges in New York, Chicago, London, Hong Kong and Tokyo. While the developed world continues to wield enormous influence on the world economy, there are also new kids on the block making increasingly noticeable waves.

The Middle East is one of the most exciting regions in terms of contemporary stock market activity. Arabs are known for their commercial acumen and for patience in delicate negotiations. A new generation of well educated professionals has descended on the stock market scenes in places such as Dubai and Abu Dhabi, and we could soon see increased activity in Bahrain, Riyadh, and all the other rapid growth centers in the desert.

The resurgence of the Middle East in the global economy will mean a shot in the arm for Islamic Banking. This system has thrived in Malaysia for some time, and the social development which won Bangladesh a Nobel Prize, may also be seen as an offshoot of thinking which puts people before capital. Most stock market operators are unaware of the principles on which Islamic Banking operates. Those who have heard about it, associate the term solely with the negation of interest. However, there is more to the religious philosophy than merely doling out money, for the system is also sustainable in economic terms.

Islamic Banking overcomes some of the traditional drawbacks of western capitalism on which the stock market structure is founded. Entrepreneurs access capital with management help, and investors share risk and return with the people they fund and support. Stock market development in the Morocco, Algeria and the Middle East embraces Islamic Banking, though cutting edge business management methodologies are also employed. An engaging feature of stock market development in places such as Dubai is that the authorities make concerted efforts to educate investors and to spread awareness of Islamic Banking principles.

Islamic Banking has enjoyed encouraging success in the Malaysian stock market. The country has sizeable numbers of Chinese and people from the Indian sub-continent, so the benefits have been rather secular in nature. The large population of Indonesia is also likely to benefit from Islamic Banking principles, once it is able to recover from a recurring spate of natural disasters.

No stock market investor can afford to ignore the Islamic Banking model for long. Liberal trading regimes in places such as Dubai allow global investors to transact in all major currencies. Firms based in Muslim countries have begun to penetrate world markets far and wide. This template of financial support is set to rival traditional financial services. The sooner that the rest of us hop on to the Islamic Banking bus, the better! There are two primary axes along which all stock market investors can participate in Islamic Banking initiatives: one is to spread portfolios yielding significant shares to countries such as the United Arab Emirates. The other is to participate more actively in the management of enterprises in which one is invested, and to stay with them during lean times.

 


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