The Fifth World Islamic Economic Forum (WIEF), which was held in Indonesia in March, turned the attention from the present credit crunch to the financial future of at least 1.5 billion Muslims worldwide.

A  growing awareness for the need of mutual assistance to foster further development among nations is definitely a positive sign of these trying times.

 The signing of four Memorandums of Agreement, though still subject to final negotiation, was a welcome event during the forum, as it was testament to the desire among Muslim nations to cooperate and grow with each other. Agreements for four Indonesian projects, meanwhile, with a combined worth of $3 billion, were also drawn up.

The global Islamic finance industry -- born out of a healthy social concern and devoid of any hidden religious agenda -- now manages over $1 trillion in assets and is surviving the present credit crunch with remarkable resilience. In Jakarta, participants acknowledged that the Islamic finance industry should cater to the whole world, not just Islamic countries.

In that regard, Islamic finance, as a subset of ethical finance, could have a lot of value to bring to global finance. One of the premises of ethical or faith-based investing is the “Prosper thy neighbor” policy. It means that prosperity for one global citizen will invariably generate prosperity for a citizen in a different part of the globe. However, one can be forgiven for thinking that conventional global financial practices are not achieving this economic equilibrium and are instead creating a “Beggar thy neighbor” scenario.

On its part, the Islamic finance industry is based upon a free market economy that functions within a well-defined framework of ethical standards. Still, like any other business model, it is subject to ups and downs. The present credit crunch, for instance, will reduce the amount of liquidity available on a global scale. Islamic finance, though not immune to the global financial turmoil, will not be as badly affected as conventional finance because it is not exposed to toxic, complex and esoteric financial instruments. Instead, it focuses on the tangible.

The global crisis, therefore, presents a golden opportunity for faith-based investing and the restoration of discipline to financial systems worldwide. Shariah principles, among others, can help financial institutions to go back to basics and withdraw from destructive financial engineering.

Being a secular, multicultural country and home to one of the dominant economies of the Organization of the Islamic Conference (OIC), Turkey appears destined to play a leading role in the field of ethical finance. In fact, the expansion of Turkish participation banks was on track last year, mirroring the linear and sustainable growth of such banks over the last decade.

However, compared to conventional banking, the Turkish participation banking sector still lacks a sufficient legal framework for liquidity management and investment instruments. There is no level playing field yet between conventional and alternative finance. Still, the sector has managed to increase its market share, slowly but surely.

Turkish participation banks are on a growth path, and conventional banks could take a leaf out of their book. In fact, some traditional banks are already offering faith-based products through offshore structuring. Others are reported to be preparing themselves for active engagement within the Turkish market itself when banking regulations allow them to do so.

It augurs well for Turkey and Islamic finance globally that socially responsible investing (SRI), including faith-based investing, is growing at about 20 percent annually. According to Dow Jones, SRI (including faith-based investing) accounts for some $4 trillion worth of assets under management globally.

After Singapore, Hong Kong and Indonesia, the Islamic Finance News Roadshow 2009 will now move to the Fours Seasons Hotel İstanbul at the Bosphorus on June 4.

TODAYSZAMAN

20/05/2009