Islamic banking executives have a proposal for their bonus-addled Western counterparts: Take a look at our model.
Beyond interest-free banking -- a prospect that would likely win few proponents in London or New York -- executives from the world of Islamic finance argued at a conference Tuesday that world markets weary of excessive risk and wealth imbalances should welcome ethical standards of investment based on religious tenents of fairness and transparency.
But they warned that the industry also needed to get its own house in order, by streamlining existing fragmented regulation and coming up with new products.
Some of the executives meeting for the 9th annual Islamic Finance Summit in London believe that the sector has already missed an opportunity in the current turmoil, by failing to seize the moment quicker to extol the benefits of investment that is based on the "real economy."
Islamic banking, which conforms to Shariah, or Islamic law, forbids charging interest and requires deals to be based on tangible assets, providing some insulation from credit turbulence. Speculation is banned, as is dealing in futures, and risk is shared.
For many, that provides a contrast with the speculation and out-of-control risk-taking that contributed to the current global turmoil.
"In the midst of this global financial chaos and dangers, advantages lie between the real economy and the financial sector," said Mohamad Nedal Al Chaar, secretary general of the Accounting and Auditing Organization for Islamic Financial Institutions. "A new financial system is emerging, it is the Islamic finance and banking system, because where we are today is a consequence of the compounded greed of individuals, institutions and nation states."
That prospective hesitancy underscores a key problem facing the Islamic banking sector: a lack of understanding of its complex tenents, which is not aided by the diversity of rulings on what's allowed by Muslim scholars across different jurisdictions.
"We still remain highly fragmented," said Mukhtar Hussain, global chief executive officer of HSBC Amanah. "Many institutions are small, operating in a single country or over a single product."
"The industry needs less discussion and more action, and more coherence with what it wants to achieve at a global level, not a local level," he added.
Hussain added that the industry needed to address the lack of products that deal with liquidity risk management and needed more product innovation generally.
But Chaar warned against attempts to copy conventional derivative instruments, warning that "mimicking is a dangerous business and would strip our uniqueness."
Islamic finance currently represents around just 2 percent of global financial assets, or $820 billion, but it is growing at an average of 28 percent each year. Much of it is originated and carried out in the oil-rich Gulf and in Malaysia, whose capital Kuala Lumpur is widely regarded as the industry's hub.
But, while Western countries go ever deeper in debt, some countries in the Muslim world are sitting on piles of oil-generated cash that needs a home, and there are already signs that it is expanding from a niche regional position: two Ukrainian construction industries gave presentations in London seeking Middle East funds, under Islamic financing rules, to back large infrastructure projects in Kiev.
And the choice of London to host the industry's most prestigious annual gathering reflects the British capital's growing reputation for innovative Islamic finance.
The British government has supported the flourishing industry and there are now scores of Islamic banking institutions in the capital offering products including home loans, current accounts, insurance and commercial investment structures to the country's 2 million Muslims.
There is also an expectation that Britain will become the first Western government to issue a sovereign Islamic bond, or sukuk.
Unlike conventional bonds, a sukuk confers to investors a proportional ownership of an underlying physical asset, such as leased land, as well as the income that it generates.
Issuing a sukuk would help revive a market that reached $100 billion last year, but was slowed by the correction of Dubai's real estate sector and economic woes in the UAE, leading to prominent defaults by Saad Group and The Investment Dar.
However, some commentators suggest that a British sukuk might be delayed by concerns it would be seized on by conservative political opponents as Prime Minister Gordon Brown's ruling Labour Party heads into a tough election campaign: an example, some say, of the need for more education about Islamic products.