But the truth is, in an Islamic-banking culture that doesn’t prize research and development, especially of the statistical variety, it’s hard to know for sure. Figures are bandied about like confetti. Is the market $200 billion or twice that? It’s supposedly grown 15 percent a year for the past decade, but the frequently quoted total of $200 billion has remained static. Worse yet, rules are generally opaque and regulation is spotty. One Western banker at an Islamic bank in the Middle East recently confided that when he took up his post last year, new compliance regulations had yet to be introduced. It’s taken the cold realities of the post-9-11 world to drag many of these banks into setting up such protections.
This is Islamic banking’s Achilles’ heel. Non-Muslims, especially regulators, often find it difficult to understand why the sector doesn’t have uniform Sharia standards. They’re right to be perplexed. Although Islam has four main schools of law that can differ in their interpretations, they are all unanimous on the basics relating to financial and investment principles. Yet most Muslim countries can’t agree among–or within–themselves on a set of codified laws.
Simply because they lack the political will, and because of petty nationalisms, the process of change is agonizingly slow. Kuwait is only now debating a draft Islamic-banking law, which has been on the back burner for more than three years because the central bank and Parliament couldn’t agree on a definition of an Islamic bank. In Pakistan the future of interest-based banking has swung back and forth over the years, depending on who was in power. President Pervez Musharraf has sacked judges who wished to arbitrarily Islamicize the banking sector and has now adopted a dual banking system. Saudi Arabia is perhaps the weakest link in the chain. Despite the fact that Sharia is the law of the land, the kingdom doesn’t have any Islamic-banking law. Why? Because if the Saudis put one on the books, it would be a tacit acknowledgment of the existence of interest-based banking, which is unconstitutional–and rampant.
Ironically, it may be the partnerships with Western financial institutions, not Islamic leadership, that oil the engine of Islamic banking. The International Monetary Fund and the Basel Committee, for instance, played a key role in the establishment of the Islamic Financial Services Board in November. The board has as its mission the development of internationally accepted standards for global Islamic banking. And business alliances with Western investment houses may do the most to shake up an insular, opaque culture of money management. Then, at least, we might know when the numbers are up or down for Islamic banking.
