In advertising the first Asia Sukuk Summit 2009, the Hong Kong Monetary Authority offered this quote from the International Monetary Fund: “The Islamic financial system may be in a better position to withstand shocks in the global financial system than its conventional counterpart.”
It goes on to say: “Promoting dialogue and exchanges among financial markets and industry professionals is important in addressing some of the key challenges the [Islamic financial] industry faces, such as consensus on international standards and global awareness. Greater transparency and harnessing of standards are therefore demanded to push the industry to the next level of development, and it would not have been possible without the collective efforts of regulators and market players in respective regions.”
The above quotes provide rather conflicting views of Islamic finance. On the one hand, the Islamic financial system may be more resilient yet it needs to be pushed to the next level of development for the sake of “greater transparency and harnessing of standards”. One may wonder whether the resilience of the Islamic financial system rests on its lack of development, transparency or standards and if this is true, whether the conventional wisdom must apply: “If it ain’t broke, don’t fix it.”
Since the flare-up of the international financial crisis, it has become fashionable to cite the immunity of Islamic finance to financial crises as a testament of its resilience. This is obviously a self serving argument and an exercise in delusion. Islamic finance, as practised today, places the industry in a more vulnerable situation than conventional finance. The real issue is not the intrinsic resilience of Islamic finance, but that the industry has not yet faced the same conditions as conventional finance has faced. Islamic finance will likely traverse a far more dangerous terrain if it continues on its present path.
(Extracted from Islamic banking and finance, Issue 21)
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