Exclusive Q&A on Islamic Finance with Atif Khan


Posted: 6th June 2016 08:02

Are There Any Compliance Issues Or Potential Pitfalls That Firms Need To Be Cautious About?

Misuse of tawarruq, promises, guarantees, and the misapplication of murabaha constitute among the most common non-compliance issues facing the industry. Musharakah, mudarabah, and ijarah remain versatile, tried, and tested products for a variety of applications, including liquidity management, deposits, trade finance, and investments.This is a function of strong Shariah regulations.

Have There Been Any Other Recent Regulatory Changes Or Interesting Developments?

The most interesting regulatory development to come about in the 65 countries in which Ethica’s graduates now work comes from Pakistan, almost despite itself given its many social and political problems. From a single Islamic bank in 2001, Islamic banks now outnumber conventional banks in Pakistan. This is a function of strong Shariah regulations. The State Bank of Pakistan convenes with leading scholars and promulgates standards — and, ultimately, polices non-compliant Islamic banks — along AAOIFI lines. Bankers are regularly trained in Shariah compliance and bank licenses have been pulled. Unlike Malaysia, where Bay al Inah and Bay al Dain are standard; or Dubai, where tawarruq is common; or Saudi Arabia, which remains home to ribawi banks despite state bans; Pakistan has made noteworthy strides in moving away from an interest-based economy to one that aspires to operate entirely free of interest.

Where Do You Consider To Be The Leading Global Islamic Finance Centre? What Other International Players Pose A Challenge This Status?

The leading global Islamic finance centre is the one bankers and consumers look to for credibility and authenticity. At the moment, with little or no Shariah regulation, Dubai, London, and Kuala Lumpur inspire limited institutional and consumer confidence. In this sense, presumptive centres must take a leadership role in Shariah compliance by adopting as law the most widely accepted standard already provided by the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI) — the same one Ethica’s CIFE and ACIFE certificates comply with. Until then, platitudes about being a ‘leading global Islamic finance centre’ ring hollow with bankers and consumers.
 
To What Extent Does Islamic Finance Support Global Sustainable, Responsible And Impact (SRI) Investments?

Islamic finance is already, in and of itself, a global, sustainable, and responsible impact on the world’s economy by its very interest-free nature. By eliminating interest, we eliminate the problem of derivatives (now thousands of orders of magnitude larger than all financial sectors combined, including the world economy itself); the problem of volatility (because transactions then depend on actual assets and services, not leverage); energy crises (because a move away from compounding interest is a move away from an endless growth mentality); and the growing gap between rich and poor (because it helps end the present paradigm, where the rich borrow at low rates and invest at high rates, while the poor borrow at high rates and invest nothing).

What Role Is Technology Playing In The Development Of Islamic Finance And Are There Any Exciting Technological Developments On The Horizon?

In the field of education, where Ethica operates, the greatest technological development is probably in the area of delivery and distribution. Whereas before the face-to-face classroom was standard, now e-learning is becoming more mainstream. Even in the hallowed halls of higher education, universities have embraced online delivery and distribution for a variety of pedagogical needs. The downside is a less interactive experience where learning is commoditised and perhaps even compromised. The upside is a level of scalability heretofore impossible. For the purposes of helping to sustain the spread of Islamic finance with qualified professionals, this scalability is a positive development in so far as it allows entire banks to train and certify bankers rapidly and effectively.

What Key Trends Do You Expect To See Over The Coming Year And In An Ideal World What Would You Like To See Implemented Or Changed?

The trend of Long Tail economics described by Wired Magazine editor Chris Anderson and others — where previously a Short Head market of few channels and limited distribution capacity (i.e. television, radio, newspaper) once addressed a large mass market, a Long Tail world sees a shift to many channels and near infinite shelf space (i.e. Internet) addressing small niche markets. Islamic finance is no different in the years to come. Ethica Institute of Islamic finance has seen business-to-consumer relationships — most notably in retail and corporate banking — slowly shift to greater peer-to-peer financial interaction, as we are now already seeing in crowdfunding, microfinance, alternative currencies, and community cooperatives. With gaps in the media value chain filled in by smaller niches, there is hopefully greater transparency and compliance. In addition, the emergence of the Islamic finance entrepreneur may also help drive the future of Islamic finance. This shift of the ‘large providing to the many’ to the ‘small providing to the few’ is what we are now already witnessing and hope to continue to see in years to come.

Atif R. Khan is Managing Director at Ethica. Previously he was Director of Islamic Finance at BankT&D. In addition to working closely with Islamic financial institutions on product development, Atif launched Ethica in 2002 while studying the Shariah sciences for five years in Pakistan, the last years of which were spent one-on-one with some of the world's leading Islamic finance bankers and scholars while developing Ethica’s content. Prior to learning about the harms of conventional banking, his earlier finance experience included investment banking at Morgan Stanley in New York and London, executing over $3 billion in transactions in several departments, including mergers and acquisitions, corporate finance, equity capital markets, and debt capital markets. He went on to become Chief Financial Officer of Iprox Limited in London before pursuing his studies in Islamic finance. Atif earned a Bachelor's summa cum laude from the University of Massachusetts, Amherst and a Master's from Harvard University.

Atif can be contacted on +97 (0) 14 455 8690 or by email at atif@ethicainstitute.com 

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