Tag Archives: middle east

Islamic Finance—A Centuries-Old Approach Providing Modern Solutions

Published here

Could a system of finance dating back to the seventh century offer modern solutions to problems like college debt and crumbling infrastructure? Dr. Ghiyath Nakshbendi, chair and founder of the graduate certificate in Islamic finance at the Kogod School of Business, believes so.

“In America, millennials are growing tired of the system of interest, especially when it comes to student loans. They are looking for something that is different,” Dr. Nakshbendi explains. “We also have big problems with infrastructure. More than 54,000 bridges need repairing, for example. Islamic finance could be a way to fund these projects.”

Kogod’s graduate certificate in Islamic finance is the first of its kind in the US. Although Islamic finance has been practiced for over a millennium in Muslim countries, it is relatively new to the US, with the Office of the Comptroller of Currency approving its use for home lending in 1997. It  has taken strong root in Europe, with nations like the United Kingdom, Germany, and Luxembourg at the forefront. In 2018, the UK’s largest Islamic bank, Al Rayan Bank, said about one-third of its customers were non-Muslim, up from one-eighth in 2010. So what is driving Western interest in this ancient approach?

“Islamic finance is not for Muslims only,” Dr. Nakshbendi states. “It is for humanity.”

Islamic finance is an alternative to conventional finance. Sharia law—Islamic law based on the religious principles of the Quran and the Hadith—forbids the charging of interest. Because money is only a way of defining value, making money from money is not permissible, rendering financial products like options, futures, and derivatives moot. In Islamic finance, lending can only occur in the context of a sale or exchange of some sort, meaning investments must result in something tangible.

If interest is forbidden, how do Islamic institutions interact with conventional financial markets? Profit-and-loss sharing contracts are one way, where an Islamic bank pools investors’ money and assumes a share of the profits and losses. Another way is renting or leasing products and services. Or a bank can form a partnership with the company it is sponsoring, reaping some of the benefits once the company produces its product. There are also sukuk—Islamic bonds.

Malaysia, a leader in Islamic banking, has been at the forefront of using Islamic finance to fund environmental sustainability projects. In 2018, Malaysia’s Securities Commission debuted the world’s first green sukuk, an Islamic bond used to fund environmentally sustainable infrastructure projects. Two Malaysian investment companies have already issued green sukuk to fund the construction of large-scale solar power plants in multiple districts.

Islamic finance is even finding its way into cryptocurrency. Rain, a Bahrain-based cryptocurrency exchange, announced in February that it had passed a Sharia compliance certification and bills itself as “the most regulated and secure digital currency exchange in the Middle East.”

“Malaysia and Bahrain are setting global best practice standards of Islamic finance. Business juggernauts like Kuwait and Saudi Arabia have been relying on this system, and they are at the forefront of all sorts of innovations,” says Dr. Nakshbendi.

The Islamic finance program attracts a wide variety of students who are eager to learn an alternative way of doing business, from creating community-minded, sustainable development to avoiding predatory lending and promoting inclusive growth.

Recent graduate Bianca Tardio sees Islamic finance as an avenue for positive societal change. “A lot of conventional finance funding provides more of a debt problem, which people obviously have trouble getting out of,” Tardio says. “Islamic finance would be an alternative to benefit not just companies or corporations but actually the people.”

Many students see Islamic finance gaining traction in the world economy and want to make sure they’re prepared to be a part of this growing global branch of finance. For them, the certificate opens up a world of career prospects.

“If one of the regular banking institutions wants to open an Islamic finance branch, someone with this certificate will be the first they will ask to get involved,” Dr. Nakshbendi says. “Even though the figure is from 2016, a study found that there are more than 50,000 jobs in Islamic finance worldwide.”

In 2017, total worldwide Islamic finance assets were estimated at $2 trillion. By 2021, they are expected to grow to $3.5 trillion. In the US, banks like Standard Chartered and JP Morgan—alongside several smaller banking institutions—are already offering Islamic personal and business banking services.

Students graduating from the certificate program are positioned to be at the forefront of Islamic finance’s growth in the US and around the world. From infrastructure development to climate-friendly investments to cryptocurrency, Islamic finance’s inherent innovation invites further exploring.

Though it has ancient roots, Islamic finance is far from irrelevant or antiquated; it offers solutions to some of the world’s most entrenched modern problems. Rather than focusing on wealth generation, Islamic finance offers an avenue to community-focused development and socially responsible investing.

SIS Experts Debate Response to Terrorism

My piece for the School of International Service

Facing the rise of the Islamic State group in the Middle East, Boko Haram in Nigeria, recent terrorist attacks in Paris, and extremist groups elsewhere, the United States and its allies are grappling with how to combat extremism and prevent and respond to terrorism. A panel discussion at the School of International Service on February 3 — U.S. and European Responses to Terrorism: Do We Have It Right? — addressed these challenges.

Moderated by Distinguished Journalist in Residence David Gregory, the former host of Meet the Press, the panel included Distinguished Practitioner in Residence Lt. Gen. David Barno (Ret.), who was senior commander of U.S. and coalition forces in Afghanistan from 2003–05, and Distinguished Scholar in Residence Nora Bensahel, a national security expert.

“This is a conflict that defies easy explanations,” said Barno, noting that the presence of terrorist groups such as ISIS and Boko Haram is threatening to destabilize the entire Middle East and North African region.

Bensahel noted that it is not a traditional military challenge alone. “These types of threats are a response to U.S. conventional supremacy, and since they do not take place on a force-on-force battlefield, even state adversaries are turning to irregular tactics like terrorism to achieve their goals.”

She noted that the Al Qaeda model of the past was a centrally-organized unit, which offered more options to counter it. Al Qaeda has since morphed into many different groups with different agendas, which makes a central strategy to combat it very difficult.

Both panelists concurred that the United States has a geographic advantage that allows it to mostly avoid terrorist attacks at home, and that the United States takes a “if we fight them there, we do not have to fight them here” approach to radical combatants.

Europe, on the other hand, is vulnerable to domestic terrorist attacks, given its proximity to North Africa and the Middle East and its continuing challenges to assimilate its Muslim communities. Europe “sees terrorism as a criminal activity — as such, it is a law enforcement problem,” said Bensahel. This non-military based response differentiates the fight against terrorism waged by Europe from that waged by the United States.

Gregory asked about the legacy of the wars in Iraq and Afghanistan and the consequences for global terrorism. Barno noted that these wars were plagued by a number of issues. He pointed to a “lack of any continuity and zigzagging far too much” and suggested that the U.S. approach has lacked a proactive element. “We have to figure out how to get at the ideology of militant Islam. We have to limit their ability to recruit by removing their ideological legitimacy, attack their finances, and also address the humanitarian crisis they leave in their wake,” he said.

Bensahel and Barno both said that a containment strategy is more realistic than a “seek out and destroy” worldview. “Instead of talking about ‘defeat and destroy,’ a more realistic goal might be ‘degrade and contain geographically,’” said Barno. To that end, intelligence and law enforcement cooperation is crucial and there is also a greater need to understand dynamics on the ground — particularly difficult in Syria, which is wracked by a civil war.

At SIS, Barno and Bensahel are collaborating on a book on military adaptation and the future of U.S. warfare. Follow them and David Gregory on Twitter: @DWBarno76; @norabensahel; @davidgregory.

Watch a video of the event here: http://www.american.edu/sis/events/SIS-Forum-Terrorism-and-US-Strategy-in-the-Middle-East.cfm