Dubai, already a hub for investment in the Muslim world, can drive reform in the Islamic sector.
Islamic finance can thrive in Dubai
Excess risk, excess reward, excess concern with short term results. More than any other word, excess gets to the root of the last financial crisis. Islamic law has long cautioned against excesses in the marketplace. Sharia-compliant finance prohibits "riba", translated into English as usury, and also attempts to keep financial transactions and markets in balance. The application of these principles helped to give birth to a thriving market economy in the Arab world that predated western capitalism and modern banking by centuries. The lessons of Islamic finance have a particular poignancy today.
A working paper from the International Monetary Fund released last week reported that Islamic financial institutions were more stable than their counterparts in the West. "Islamic banks performed better, given the large losses incurred by conventional banks in Europe and the US as a result of the crisis," researchers wrote. Both bankers and students are keen to know why: at branches of business schools in Dubai and in the West, classes on the subject are oversubscribed.
The Islamic finance industry already has nearly $1 trillion under management. Demand for Islamic financial products and institutions is expected to grow to $2.8 trillion by 2015, according to the Islamic Financial Services Board based in Malaysia, the country that is the global hub for Islamic banking. The growth in the industry presents an opportunity for this region, and for Dubai in particular.
According to a recent survey of leaders in Islamic finance compiled by Deloitte & Touche, there is considerable room and reason for reform in the Islamic financial sector. Industry leaders reported that a broader agreement on regulatory measures, best practices, and transparency must be applied. Dubai, already a hub for investment in the Muslim world, can drive reform in the Islamic financial sector, and as it does so, help to meet the growing demand for its services.