One of the most important facets in the future of global financial services is the integration of Islamic finance. A vast market exists in the Islamic countries that remain virtually unexploited by western financial markets due to the obvious political issues and a basic misunderstanding of Islamic financial culture. The misunderstandings of the past are now being addressed in the best way possible by improving knowledge and awareness of the culture and cross training. The open debate about Islamic finance and the bringing together of like minded business objectives from different cultures will eventually culminate in a mutually beneficial global market place, that encompasses universally acceptable principles of ethics rather than different mystical theories & misinterpretations.

It appears the western markets are now increasingly ready, willing and able to further advance discussions with the Islamic financial community, to better appreciate the ethics that bind the business. Issues from the Islamic side are more complicated due to internecine tribal rivalries of the Arabs which causes hurdles in inter-Arab & intra Arab cooperation.

At a recent round table organised by the Islamic Financial Gateway, Professor Mahmood Faruqui, a London based Senior Lawyer & Islamic Finance Adviser made many salient points when explaining issues to overcome cross fertilisation of ideas across Islamic countries to enable a cohesive business relationship model with western countries & markets. However, the point was also made that western financial markets have their historical roots firmly planted in ancient Islamic grounds. The western and Islamic financial markets are grown from the same seed and this should eventually prove to be the winning ingredient to the integration of the Islamic financial markets within the global markets.

There are also basic legal difficulties to be overcome between the two financial markets that lie within the definition of profiteering & gambling. In the western markets the trading room’s sail close to the wind with many different derivative instruments entirely born from speculative betting where naked short positions can hardly be justified as an investment. Many of the western trading rooms would not be acceptable within an Islamic market place. Alternatively there are Islamic trading ethics that would be frowned upon within the western compliance departments. These issues however are not insurmountable and it is hoped that an open and honest debate and transparent decision making with a clear business objective, will bring forth a common ground that meets both cultures. Certainly the airing of views will surely bring a closer a relationship and eventual alignment of rule books, which may be different, but not differing.

The Securities Investment Institute has been busy building relationships in the Lebanon that will eventually extend across many other Islamic countries, which will create a training programme and recognition of individuals with financial firms within the Islamic country, but more importantly within the UK and hopefully across the EU. This is an historical and important step by the SII that will have far reaching benefits in the long run when integration of the Islamic financial markets is realised.

Professor Faruqui provided a brief history lesson on the origins of Islamic finance and how it used to operate successfully with what was the beginnings of western markets and a the modern history up to the Oil crises in the early seventies. “Then”, he said, “we were not fired like contemporary Islamicists, but inspired by solidarity for the common good”.

However, I believe that it was that Oil crises that eventually set the world on the path we now find ourselves, where a divide has been created and mistrust between east and west. As the eastern countries of OPEC gained in power and wealth the western governments felt threatened and became defensive. It is now time for all good men to come to the table and take advantage of the huge growth of the Islamic financial markets.

Although a chasm may exist between different Islamic financial institutions that may prove too difficult to resolve they all have two things in common, first the Islamic Faith and second the desire for successful business. The UK as the largest international financial market can provide a common link between different Islamic financial institutions to assist in the eventual integration of western and eastern financial institutions. The UK financial markets will hasten the growth within Islamic financial institutions for the good of the world markets.      

By Gary Wright