Islamic Banking & Finance Conference
By Nick Yawer

The first International Islamic Finance Conference in Washington DC organized by the Islamic Free Market Institute in September 2002 was heralded as a great success by both the media and attendees.

Congressional members, officials from the Treasury, State, and Justice Departments, in addition to banking executives from major U.S. and International banks, financial experts and academicians from George Washington, Georgetown, and Harvard Universities examined the key issues in this rapidly expanding industry.

Welcome remarks for the conference were given by Khaled Saffuri, chairman of the Islamic Free Market Institute Foundation, The Honorable Randal Quarles, assistant secretary of the Department of Treasury, His Excellency Sheikh Ahmad Bin Mohammad Al Khalifa, chairman of the Bahrain Monetary Agency, The Honorable Bob Barr, congressman (R-GA), and Dr. Ezzedine Khoja, general secretary of the GCIBFI.

Islamic banking and finance is poised to take advantage of a decade of growth to become an even greater player in the global capital markets. Growing at a rate of 15 percent per year, with a presence in 75 countries and accounting for around $200 billion in assets, Islamic finance continues to be successful in the face of misperceptions and misconceptions

Since the early 1960s, the Islamic Banking and Finance sector of the international capital markets has steadily grown in size, sophistication, and breadth to a $200 billion industry. In addition, there are some $200-$300 billion in assets that are managed in accordance with Islamic principles by Islamic departments of conventional banks and finance houses. Due to the excellent potential in terms of expanding audience, demand, and solid performance of Islamic banking and finance to date, more and more institutions are offering Islamic financial services either exclusively or in conjunction with conventional services.

What sets Islamic banking apart from conventional banking is that investments must be made in ethical sectors and industries. Investment is prohibited in activities that contribute to the production of alcoholic beverages, gambling, pornography, tobacco, mass destruction weaponry, and all other morally questionable practices. In this context, Islamic investment resembles similar developments in the West where socially responsible investment funds have emerged. Secondly, due to the Islamic prohibition of paying or charging interest, Islamic banks instead accept deposits on investment basis whereby depositors share in the banks actually realized returns on their investments. These banks provide financing to businesses on the basis of installment sale, leasing, and/or equity participation, thus the bank and their depositors share financial risk with the entrepreneurs and both then reap the benefits of investments. For the purpose of continuous monitoring, Islamic banks are normally and periodically reviewed both by auditors, chartered accountants, and each bank's own board of experts in Sharia law.

While Islamic banking and finance is clearly not only a stable and successful market, but a sector with incredible growth potential, there still remains a great deal of education to be achieved before the industry takes off in the U.S. The Islamic Free Market Institute has addressed the need for a better understanding of this industry by organizing the conference and helping educate U.S. policy makers.

Her Excellency Tan Sri Dato' Dr. Zeti Akhtar Aziz, governor of Bank Negara Malaysia, opened the first panel by addressing the regulatory challenges for international financial systems in regards to Islamic banking. Mr. V. Sundararajan, Deputy Director of the International Monetary Fund spoke next regarding the key issue of risk in the Islamic financial service industry. Professor Rifaat Ahmad Abdul Karim, secretary general of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), concluded the first panel with dialogue of the regulatory environment of Islamic financial institutions. Professor Karim gave an overview of the regulatory environment in general, while concentrating upon the work of the AAOIFI and the Islamic Financial Services Board (IFSB).

The conference's second session was moderated by Mr. Thomas Tellner of the Guidance Financial Group. The panel concentrated upon prospects and trends for the Islamic banking sector. Mr. Glenn Fortin, managing director for TransOcean Capital, gave a speech entitled Private Equity Investment "rolling out", while Sheikh Yusuf Delorenzo, an independent Sharia supervisor, gave an overview of the history of Islamic banking. Dawood Taylor, assistant general manager and head of Takaful Ta'awuni at Bank Aljazira, spoke of the differences and similarities between takaful ta'awuni (Islamic life insurance) and conventional mutual insurance.

A. Rushdi Siddiqui, managing director of the Dow Jones Islamic Market Index Group, finished the session on prospects and trends in Islamic banking with his speech Overcoming Obstacles in Establishing Trends.

Keynote speaker Mr. William L. Rutledge, executive vice president of the Federal Reserve Bank of New York, spoke at the luncheon where he gave a detailed overview of the new Basel Accord, which further refines prior Basel agreements on international capital adequacy requirements for financial institutions.

H.E. Dr. Ahmad Mohammad Ali, president of the Islamic Development Bank, moderated the third session of the conference, entitled Islamic Banking, Finance & Investment in the West. The panelists for this session were Atif A. Abdulmalik, CEO of First Islamic Investment Bank, Abdulkader Thomas, principal at Strategic Guidance, Virginia, Mike McMillen, a partner at King and Spaulding, and Tariq Al-Rifai, vice president of HSBC New York.

Mr. Abdulmalik spoke of Islamic investment banking in the U.S. through a practitioner's perspective, while Mr. McMillen gave an overview of the structures and current developments of Islamic financing products in the U.S.

Mr. Thomas titled his speech Intersections: Western Demand--Eastern Product, and spoke of the problems in understanding Islamic banking and finance as well misconceptions that have limited the growth of this industry in the U.S.

Mr. Al-Rifai, in his speech, Creating Retail Banking Products for American Muslims, spoke of four main questions to be answered: why are particular banks in this market, where are the other banks, what do American Muslims think of Islamic banking, and what do regulators think of Islamic banking?
The conference's fourth and final session was entitled: Islamic Finance, Myths and Reality, and moderated by Dr. Naser Al-Sane, a member of Parliament in Kuwait. The panel's first speaker was Dr. Mahmoud El-Gamal of Rice University, whose speech Co-Evolution of Islamic Jurisprudence and Finance: Distinguishing the Road from the Destination was a short history of the continuing evolution of Islamic jurisprudence. Samer R. Alhaj, executive vice president of Gulf Investment House, in From Concept to Final Product: An Innovative Approach to Islamic Financial Investment gave a case study in building an Islamic product. Dr. Hasnita Dato'Hashim, executive vice president of Guidance Financial Group, whose speech was Practical Aspects of a Viable Islamic Secondary Market and Dr. John Lightstone of Pace University, who spoke of Quantitative Methods of Stock Selection in the Construction and Testing of Sharia-Compliant Strategies.