Description: This is
a VOA Special English Economics Report.
See text below
Text:
Dubai's recent debt problems have brought attention
to the growth of Islamic finance. A government-owned
group of companies, Dubai World, has been seeking to
restructure twenty-six billion dollars of debt.
About six billion of it is in Islamic bonds,
including a three and a half billion dollar bond set
for repayment in December.
The biggest difference between Western and Islamic
finance involves beliefs about charging interest on
borrowed money. In Islam, the basic idea is that you
should not make money from money itself.
Instead of interest, lenders charge fees. Ghiyath
Nakshbendi at American University in Washington is
an expert on Islamic financing.
He says: "The bank will estimate its costs based on
its fixed costs, variable costs, the cost of their
employees, the rent and so on and so forth. And from
that they estimate how much they are going to
charge.
But he points out that this system can make Islamic
financing costly. The costs of the system are shared
by the borrowers. The fewer the borrowers, the more
each has to pay.
In many cases, Islamic financing requires the lender
and borrower to share profits and losses.
Ghiyath Nakshbendi explains what that means with
Islamic bonds, called sukuk. He says the bondholders
are buying a share of a business or property.
If business is good, then they could get back more
than they expected. But if it fails, then there is
no guarantee of repayment.
Islamic bonds can be structured in different ways,
but a major idea is shared profit and loss.
Professor Nakshbendi says Islamic lending practices
are also supposed to be socially responsible.
In world banking, the total share of Islamic finance
is less than one percent. But it is growing at a
rate of fifteen to twenty percent a year. There is
growing interest in Islamic banking in the West.
London is becoming a center of Islamic finance. And
France recently proposed changes in finance laws to
protect Islamic bondholders.
Estimates differ, but as much as one and a half
trillion dollars may be managed under Islamic rules.
In two thousand eight, the International Monetary
Fund studied the financial security of Islamic
banks. It found that their lack of complex products
like futures and derivatives limits the ability to
spread risk.
And that's the VOA Special English Economics Report.
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is a Voice of America video which covers an interesting
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