Islamic Finance to The Rescue of Spain
The next day, June 17, Industry Minister Miguel Sebastian open at the Palacio de la Bolsa de Madrid an unprecedented conference in Spain: the current role and future of Islamic finance, in particular its adaptation to finance infrastructure and renewable energy. The congress is organized by IE Business School and the King Abdul Aziz University (Saudi Arabia) through Islamic Finance Center both have founded and directs a historic stock management in Spain, José Luis Pérez Estévez. The conference will be attended major bankers and Saudi and Gulf academic experts in this type of financing, which moves more than 800,000 million dollars with 20% growth each year.
What is Islamic finance? The Quran, like the Gospel, prohibits lending at interest. The Church softened their position since the thirteenth century, but in the world of Islamic finance is not accepted conceptually an unpaid debt. Therefore all funding under the Koran must fulfill the following characteristics:
a) route is preferred equity financing, where it is accepted by way of a return of a business partner to finance unpaid loan,
b) the projects under this funding will be in accordance with religious law, prohibit activities like gambling or alcohol,
c) funding is always linked to a real asset to generate cash flow, hence the clear implementation of infrastructure projects and renewable,
d) the highly speculative activities (as many products to cover risks employees) are prohibited. The Islamic finance movement in Pakistan began in 1958, but has been in the last 15 years when growth has been revolutionary, especially in Malaysia and the Gulf, and now nearly half of the financial system in these regions (including insurance, there, known as takaful, as our mutual work) have been Islamized.
Naif Are these commandments? For the uninitiated will often appear. However, looking at their practical application the result is surprising, since it increases the stability of the financial system. Unable to pay the largest banks in the form of equity linked to physical assets, the ability of bankers to increase the volume of its lending is constrained, limiting the risk of asset bubbles. On the other hand, to be banned many products considered “very speculative” (risk of loss greater than 50%), Islamic banking has emerged almost unscathed from the global financial crisis because it had no exposure to structured products.
If Saudi Arabia six U.S. dollars it costs to extract the oil and take it to the coast and the selling price is 80, just imagine the liquidity that such equation has on its financial system. The author of the article was taken aback when, interviewed in Riyadh Saudi various Islamic bankers, explained that the main problem lay in the excess liquidity in the Islamic banking system and lack of liquidity products to reverse this.
Given the economic and financial crisis living in Spain are thinking about what we are good. Clearly we have highlighted both in infrastructure and in renewable energy among the leading countries in the world. Spain will have increasing trouble absorbing funding in traditional financial markets. Islamic finance are specially designed for the sectors where Spain stands out. This conference will therefore be an excellent first step in making this idea a reality.
Too avant-garde? General Electric in November 2009 issued a sukuk for $ 500 million seeking access to the pool of Islamic savings, and the French Treasury is preparing a similar issue.
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Tags: Financial Markets, Islamic Bank, Islamic Finance, Spain Economic Issue