We continue the topic of geopolitical confrontations in the Mesopotamian triangle, where religions and political systems collide, new ideas are born. And new financial systems as well. Iran, Turkey, and Saudi Arabia: perhaps, it is in this triangle where the future of the digital economy based on a different vision of the world is being created.
Ep. II: Islamic banking. Money likes… ethics
In the second decade of the new century, IFMs is growing at the rate of 15, it has become a real alternative to the existing global economic structure.
The 2008 crisis “tore up” the Western economic model, and in the thinnest place - in the credibility of financial institutions. It was the abuse of faith in the infallibility of big business that led to the bankruptcy of Fannie Mae and Freddie Mac. Let’s recall that at the time of the bankruptcy, these companies were the most significant operators of mortgage assets, and this is where the systemic problem of modern Western finance lies: how can you trust institutional investors when they have once deceived thousands and thousands of customers?
The state, of course, supported the institutions that were going bankrupt and did not allow a social fallout. To save the mortgage of giants $187,5 billion was spent. But, at the same time, the US authorities themselves behaved not like business angels towards these companies, but like real raiders. For example, as of the end of last year, the budget received $270 billion in dividends from the activities of Fannie Mae and Freddie Mac. And it continues to receive.
“At the moment, production in the world is about 70 trillion US dollars, but the total volume of global financial markets, including the markets for derivative financial instruments, has exceeded 700 trillion US dollars. This is a very, very big gap, - the Professor of the Islamic University of Istanbul, Yücel KAMAR commented for Bitnewstoday.com. - The Western traditional financial system is based on the sale of loans to second and third parties, and this was the main cause of the 2008 US mortgage crisis. Moreover, during the financial shock, the general welfare of citizens decreased from $74 trillion to $63 trillion. In fact, American taxpayers paid the bills of this crisis.”
It is hard to believe that the world did not notice this challenge. And the answer came from the Islamic financial sector.
Shariah laws strictly prohibit usury (riba), the sale of loans, lies in the material relations between people, and unreasonable risks (bayu al-gharar). And it is important that these taboos are strictly observed. Otherwise, violators face not only retribution in the afterlife but also real sanctions from earthly authorities since the majority of such credit organizations are registered in jurisdictions where Sharia is the basis of quite ordinary, common legislation. That is, religious law acts as a factor in reducing the risks of the financial system.
“The financial world needs a new paradigm, which implies a reduction in dependence on loan-based funding,” continues Yücel KAMAR. - The new paradigm should be based on “partnership”, and not on “interest/usury”, “loan”, and “sale of loans”.
However, the volume of the ethically oriented financial market is small today: the expert believes that this is $2– $2.5 trillion. At the same time, the main asset holders are: the Gulf Cooperation Council (GCC) - $900 billion, Southeast Asia - $470 billion, and the countries of the Middle East, except GCC - $450 billion. “There are many indicators that classify countries by their developments in the Muslim financial world but, in general, it can be said that Malaysia is the leader in Islamic finance. Iran is also a rapidly growing country in IFMs. Other leading nations are Saudi Arabia and the United Arab Emirates,” says Yücel KAMAR. “Yes, Islamic financing can and should be an alternative to the Western one - to force the interest and loan system out. But for now, this is unlikely: Islamic financial services are too young. The Western financial system has been developing for 400 years, while the Islamic one has been on the agenda for about 50 years,” says our expert.
Simply put, the scientist identified the main problem of the Islamic economy, which one can overcome with the help of the digital market development, and that is the time and information gap between the two economic structures and financial systems. This is the only way to realize the competitive advantage that religious ethics gives.
“The Islamic market is built on moral postulates, which cannot be said in relation to the Western market,” said another our expert, the senior employee of the Dubai Islamic Bank, Aziz Ul HAQ. “And it will become a real alternative to Western markets in the foreseeable future because Islamic finance and crypto-assets operate on the basis of the real value of the thing.”
Moreover, the concept of "value", which was used by our commentator, should be understood in the broadest sense here: not only in the quantitative monetary but in the qualitative one - ethical dimension.
The Islamic financial sector is growing not only due to the attraction of Muslim clients but also due to the influx of capital from the West since the reliability of personal information storage and the anonymity are also true financial values of Islam. It is no secret that Eastern banks do not work so closely with the FATF and the intelligent services of various countries. Many of these credit institutions embrace the same principle today that Swiss banks embraced until September 11, 2001: protecting the client at all costs.
However, the Islamic world has dark sides that destabilize the economic situation. And this is not only, and not so much terrorism and the violation of human rights that became customary: reliance on traditional values inevitably entails the intensification of historical contradictions.What we see now can be called nothing but the fight for the Eastern world. The prize for the winner will be the control over both oil and the Islamic financial market. And we write about this in the third part of our journalistic research (in the first part we talked about geopolitical assumptions).