Two London-based Malawians have backed calls for the establishment of an Islamic finance and banking system in the country.
They have described it as an organised and prudent platform that will rid Malawi’s globalised and integrated financial market of numerous products which are proving toxic to the economy.
Speaking exclusively to Business News, Rhodrick Jhunaid Kalumpha and Abdul Sherrif Kaunde said the bank’s consumer friendliness does not limit customers’ choices.
Said Kalumpha: “Financial engineering and computational finance has given rise to financial instruments such as futures and options, currency swaps, credit default swaps and Collaterised Debt Obligations (CDOs) just to mention a few.
“Using mathematical finance, numerical methods and computer modeLling, these derivatives are designed and created to facilitate in trading, hedging and investment decisions and risk management. The result of this is that in 2008 most major economies collapsed and the effects are still being felt today even in our country.”
He said while this is happening, Islamic finance and banking has been moving beyond its boundaries into new territories by providing an alternative to this frenzied psychosis.
“The CityUK, a UK financial think tank estimated global Islamic financial assets to have reached $1.041 trillion in 2009 up from $947 billion in 2008 with a steady growth of 10-15 percent in 2010.
“Extrapolating this growth, we would assume that the assets should be approaching the $1.7 trillion mark. The thinktank further asserted that in the UK alone, there are over 20 banks that provide Islamic assets worth $19 billion, with HSBC Amanah controlling the bulk of it,”
said Kalumpha, who is group financial controller for Global Tea London.
He allayed fears that Islamic finance will bring Islamic Law (Sharia) in the country.
“Islamic law of banking operates alongside laws of the land and the two do not overlap. Contracts in Islamic banking are drawn in accordance of the law of the land although compliance to Islamic law is a must.
“Therefore, any breach arising from these contracts, parties should seek redress from courts of the land as opposed to Islamic courts. Islamic law does not give the Sharia Board (the body that looks after Islamic products, comprising of scholars and experts in Islamic Law) any judicial and arbitrary powers since the ultimate power to do so rests with the courts of the land,” said Kalumpha.
Weighing in, Kaunde said the fundamental difference between Islamic finance and conventional finance is the mere charge of interest on a product lent or borrowed.
“Under Islamic finance, interest, known as Riba in Arabic, is disregarded or forbidden since money has no intrinsic value under Islamic law and should only be used as a measure of wealth. With interest forbidden, one cannot earn “money” on money lent to another party nor be required to pay interest on money borrowed. Under Islamic law, money cannot create or produce more money. Rather services must be provided and effort exerted to generate wealth,” he said.
Kaunde, a practising lawyer in the United Kingdom (UK), said the fundamental condition for any investment or transaction under Islamic finance system is that money be treated as medium of measuring wealth and exchange: hence interest is considered to be both a social and economic injustice.
“By excluding interest from the financial system, fair and moral economic behaviour will be promoted. The underlying value in Islamic finance is to avoid exploitation with the objective of sharing reward between the parties involved.
“The conventional system of banking is exploitative in nature, therefore, not fit for a country like Malawi where the population is largely poor. Malawi would fare well with a system of banking that is just and balanced,” he said.
Kaunde said in Islamic banking, no money is advanced by the financier unless the client assures the financier that he wishes to purchase a specific commodity or conduct a certain business that will produce a reward or profit.
The two parties will enter into a profit and loss sharing agreement and thus the exclusion of interest, he said.
Kaunde also observed that the conventional current system of banking causes imbalances in society.
“Unhealthy human instincts are exploited to make money through immoral and injurious products,” he said.
In 2011, the Reserve Bank of Malawi (RBM), rejected the introduction of Islamic banking, but President Joyce Banda in November 2013 asked Moslems in the country to move towards establishing an Islamic banking system that complies with their faith.
This statement spurred the concerned parties in the country into action and an advisory committee has since been set up tasked to work with RBM in a quest to institutionalise the system.