Financial institutions to be more socially responsible

ASTANA. March 19. KAZINFORM /Rizvana Sadykova/ As part of series of publications in connection with the Second Astana Economic Forum on?Economic Security in Eurasia in the System of Global Risks?held in Astana, 11-13 March, 2009 we introduce our guest President of the Islamic Development Bank Dr. Ahmad Mohamed Ali to the readers.

What is the main objective of the 2nd Economic Forum taking into account the fact that the whole world facing long term consequences of global financial crisis is not very optimistic on the possibility of finding the best remedy soon? As you may know, this Economic Forum of course has been caused by the financial crisis. That is why I am happy the Forum is preparing the message for overcoming the global economic crisis to be delivered to the G-20 Summit. I am confident that the tolerance of people and the diversity of an interest search message that will be probably important and I do hope that G-20 members will pay a special attention to what the people here are going to search for them. As far as Islamic finance concerned we call upon all financial institutions of the future to be more socially responsible and engaged in financing investment, trade and business instead of engaging in purely financial speculative activities. We do offer to join hands to develop a stronger linkage between finance and the real economy for an inclusive and sustainable economic development. Do you know that 15 years ago President Nazarbayev announced the idea about establishing the Eurasian Union made from post soviet countries. Some scholars say that is something that everyone has his own opinion. Do you believe that now it is time when not country itself but region should be stronger in order to survive in the future? First of all, I repeat that Mr. Nursultan Nazarbayev rightly said in your book "the Kazakhstani Road" that experiences of nations and people are very important to study and to benefit from, in the development process, and there is no other way, but to face the multiple challenges with knowledge, transparency and partnership. Kazakhstan has a very important strategic position between two important global regions. That is China and Europe? And I think the philosophy and the openness of the policy of the President of Kazakhstan will really enable them to prepare Kazakhstan to bear this important role ? to be not just transit point, but a strong bridge connecting two global regions China and Europe.. Therefore I believe that this idea of the Eurasian Union is a very good idea and it has promising future. As you may know Kazakhstan has already ratified Law on Islamic banking. As the Head of the Islamic Development Bank, what recommendations you will propagate during the Summit? First of all, I would like to congratulate His Excellency, President Nazarbayev for his vision and leadership in paving the way for introducing Islamic Finance to Kazakhstan through the recent ratification of the Law on Islamic Finance. I am confident that this historic decision will play a crucial role in making Kazakhstan one of the pioneering financial centers in the Region. I also must commend the efforts of the Republic of Kazakhstan for organizing this Forum which provided a platform for world experts to debate issues and propose solutions to economic challenges facing our global village. As I said during my speech in the Forum, we think that the model of the Islamic banking model can contribute to shaping the new architecture of the financial order in a way that we can minimize similar crisis to come again. Due to a number of unique features, the Islamic Financial institutions have remained insulated from the adverse affects of first phase of the crisis. First, the profit-sharing nature of deposits introduces greater discipline into the financial system and, thereby, leads it towards genuine stability. Moreover, since banks either finance assets and trade or take partnership in businesses, Islamic Financial institutions have tremendous stake in the success of the projects and activities that they finance. Therefore, the nature of both funds and assets enhances the incentive structures and enhances market discipline. Second, the fundamental principle of wealth management in Islamic Finance, namely, ?don?t sell what you don't own? and restrictions on sale of debt eliminate the possibility of unhealthy speculative activities. Therefore, credit can grow only in proportion to the potential growth in the real economy, and hence, the possibility of an excessive and unsustainable leverage and pyramid of debts does not exist. Finally, there is an emphasis on internal regulations in the of Shariah Supervision, screening, documentation, clarity of contracts and social responsibility are integral part of investment decisions. I must note that most Islamic Financial institutions have reported net income growth during 2008. This leads us to an important conclusion - that during the crisis, public confidence in Islamic Financial institutions has in fact increased. Since loss of trust and confidence in financial institutions has been one of the most important causes of the global financial crisis, the state of Islamic Financial institutions indicates an important positive sign. I should however add that eight Islamic finance infrastructure institutions, established by the IDB and other stakeholders, will support the Islamic Financial institutions in facing the new challenges and meeting the requirements of the emerging financial architecture. These infrastructure institutions will also enhance the contribution of the Islamic Financial Services industry to global financial stability within the existing relevant international forums such as the Financial Stability Forum It is clear now that socio -economic situation in many countries in the third world even has become worse in the face of the crisis. The membership of the Islamic Development Bank comprises of developing and least developed countries. Talking about the need for humanitarian assistance what should be changed in strategy of international financial institutions to address the needs of poor? Again, as I mentioned in my speech, one of the main challenges is a problem of alleviating socioeconomic insecurity. As far as humanitarian assistance concerned, I firmly stand for the principle, that it should be based purely on humanitarian reasons, be our of political or religious biases. In fact, the current financial economic crises were preceded by those of food and energy. It is easy to comprehend the devastating compounded affects of these crises on the poor and vulnerable segments of humanity. They caused a sharp decline in economic growth, loss of demand and markets and export earnings. It is more worrisome that the crises have adversely affected the flow of foreign direct investment and official development assistance and has worsened the balance of payments positions, especially in developing countries. As you know, the membership of the Islamic Development Bank comprises of developing and least developed countries. I believe that the growing and grave challenges faced by the vulnerable economies can be alleviated only through effective cooperation and coordinated efforts by the international, regional, national and civil society organizations. We must collectively resist the tendency to move towards increased protectionist policies, which unfortunately appear to be emerging in some important economies. Undoubtedly, protectionism can serve no useful purpose other than erasing our past gains in regional and global trade and economic integration, and could undermine the foundations of the global free market economy. More than ever before, building of synergies, partnerships and cooperation is the right way to create new jobs, and enhance investment, production and free trade. Together we have started to unearth hidden opportunities in the least developed countries, to find unconventional solutions to ordinary development issues. This approach is both synergetic and ethical. One win-win solution is to direct private investment, supported by development finance, towards shared priorities, like enhancing food security, and provision of health services to the poor. Dr Ahmad Mohamed Ali Al Madani Dr. Ahmad Mohamed Ali Al-Madani is the first President of the Islamic Development Bank (IsDB) since 1975. Dr. Ali was born in Almadinah Almunawarah, Saudi Arabia in 1934. He holds a B.A. degree in Commerce and a degree in Law from Cairo University, Egypt. He earned M.A. and PhD degrees, both in Public Administration, from the University of Michigan, Ann Arbor, and, State University of New York (SUNY), Albany, USA, respectively in 1962 and 1967. He was Rector of King Abdulaziz University from 1967 to 1972. His contribution to the development of the people was recognized by the government of the Kingdom of Saudi Arabia and in 1972 he was selected to serve as Deputy Minister of Education. Upon the initiative of the late King Faisal Bin Abdulaziz, when the member countries of the Organization of the Islamic Conference (OIC) decided to establish the Islamic Development Bank, he was chosen as its first President. He has spread the involvement of the Bank in several directions including trade, insurance, the private sector, etc. as demonstrated by the establishment of the IDB Group of Institutions comprising the Islamic Research and Training Institute (IRTI), the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the Islamic Corporation for the Development of the Private Sector (ICD), and the International Islamic Trade Finance Corporation (ITFC).