Islamic Financial News: crisis impact to islamic finance

Moody’s Economy.com says the intensifying credit crisis has spread to foreign trade. According to the independent provider of economic analysis, reports have emerged of banks refusing to honor letters of credit from other banks. Some cargo ships have been stranded at ports, while stocks pile up because exporters have been unable to arrange shipping without being afforded bank finance.Yes, the tremors from the US subprime earthquake are indeed being felt globally by the ordinary folk. After Iceland, Argentina faces the prospect of bankruptcy, the Baltic states are said to be “in real trouble” and Pakistan has narrowly averted bankruptcy after securing financial backing. More than half a million people in Japan lost their jobs in just three months. Even the petrodollar economies are feeling the squeeze. Saudi Arabia and the UAE have poured up to US$10 billion into their banks to ease tight conditions as Gulf Arab policymakers prepare to discuss a coordinated response to the global economic crisis.British Prime Minister Gordon Brown’s admission that the global economic downturn is “likely to cause recession” in the UK saw markets slump. Bank of England governor Mervyn King said that not since the first world war has the international banking system been so close to collapse. Brown said: “Having taken action on the banking system, we must now take action on the global financial recession which is likely to cause recession in America, France, Italy, Germany, Japan and — because no country can insulate itself from it — Britain too.”The upside is that genuine interest is emerging in Islamic finance as an acceptable alternative. UK Trade & Investment is supporting a briefing to give financial companies a better understanding of Islamic finance by explaining whom it applies to, how it can complement existing financial services strategy, and what the benefits are. Chief executive Andrew Cahn said: “In these tough times, it’s more important than ever that we make the most of growing sectors like Islamic finance.”The Islamic Bank of Britain has reported a growth of 5% in customer numbers and 13% in customer financing. The reason is that the bank “has been better protected from the credit crunch affecting mainstream banks”, said its commercial director, Sultan Choudhury. He attributed the rise to people “looking for a safer option for their money”. In Australia, financial institutions and the government are considering introducing Islamic banking and its principles.Indeed, Islamic banking has largely escaped the crisis, but according to experts, because of its heavy reliance on property investments and private equity, the industry could be hit if the turmoil worsens and real assets start to crumble. Still, Kuwait Finance House reports that the outlook for Islamic financing is bright and it will likely take the lead in terms of providing funding for major projects as the conventional banking system reevaluates its business model.In the circumstances, Malaysia wants Islamic financial authorities to push for common global standards, pointing out that the differences are very small — “We agree on 95% of the products,” second finance minister Nor Mohamed Yakcop said.As someone put it, the rules of Islamic banking and finance read like a how-to guide on avoiding the kind of disaster that is currently gripping world markets.