Islamic finance in the eyes of a young visionary

She is completing her undergraduate degree with a double major in Economics and International Relations at the Stanford University, California. Tahir presented her initial research paper, an outline of a new model based on Islamic Shariah compliant concepts for retail customers, to the Islamic Finance Project of the Islamic Legal Studies Programme, Harvard Law School.

Her initial paper drew attention and interest of Dr Nazim Ali, the Acting Executive Director Islamic Legal Studies Programme at Harvard. Consequently, Tahir is spending the fall semester of 2010 at Harvard so as to get first hand information and experience for her research work; she plans to continue her research when she returns to Stanford for winter semester.

“The model I propose is a potential solution to the current global financial crisis, while adhering to the Shariah and being within the bounds of the rules and regulations of Islamic Finance,” Tahir told Khaleej Times. Her product, Al Taawun (which translates: helping one another), is built on the foundation of the Islamic principle of Qard Hasana, with a greater emphasis on the “cooperating with and helping one another” motto.

Al Taawun is a product to be launched by an Islamic Finance institution. Such as a bank, that creates a network of individuals (the customers), all working together as a group; the individual members of this group contribute a sum of money to the group, the collective amount of which, every member gets to benefit from at different time periods during the year.

The principle focus of this product is to create awareness about the concept of saving versus the concept of credit. Al Taawun encourages people to create a reserve for themselves rather than resorting to credit-interest-based means of finance.

In her research, Tahir will discuss the product Al Taawun, in detail, starting with its introduction and going deeper into its mechanism, the various assumptions of this model, its advantages and disadvantages, its compliance with the Shariah law, and a conclusion that will pass its eventual judgment on Al Taawun.

“The religion, Islam, emphasises a great deal on the idea of justice, ‘Adl.’ The concepts and teachings of the Islamic Finance system all revolve around this idea, which is the reason why interest, ‘Riba’, is completely unacceptable in Islamic Finance, and prohibited in Islam,” Tahir explained. The practice of interest-based forms of finance creates injustice in society. Al Taawun will try to conquer the problems faced by Islamic finance in trying to create a fair, just system of finance that caters to every individual’s needs, without the involvement of the concept of interest, she said.

The tremendous expansion that the Islamic finance sector has seen over the past few years, has encouraged many conventional banks to adopt Islamic finance and benefit from what it has to offer, especially during the current global financial crisis, Tahir said. Throughout this ongoing global crisis situation, financial assets that are Shariah-compliant have been relatively less affected, she said. Islamic Finance primarily prohibits dealing with interest and distances itself from market speculation, and it is this nature of this system that has helped it stand unharmed by the current crisis situation.

Tahir said that having had triumphed time and again as the more efficient and effective alternative to conventional banking, Islamic finance has seen great success despite its very recent beginnings.

“With an incredible change in social lifestyles and the standards of living in the recent past, there has been a higher demand for personal loans, credit cards, wealth management, and so forth, to accommodate these changes,” she said.

Tahir said that in the Islamic finance system, however, there is no significant form of finance that caters to individual financial needs, particularly “cash” needs, while disregarding the individual’s need/financial background and distancing from interest.

“This being said, there is now a greater need for research and development in this field than ever before. One specific area of Islamic finance that can be seen as a weak link or an area that has a lot of scope for new development is the retail/consumer banking sector,” Tahir pointed out.

business@khaleejtimes.com