Business | Analysis

Islamic finance seen through the microscope

Academia and bankers would benefit from sharing experiences

  • By Andrew Shouler; Financial Correspondent
  • Published: 12:51 October 6, 2012
  • Gulf News

In my experience conferences are substantially networking events, a break from the office, perhaps an opportunity to travel, socialise — and eat richly.

It might then be a way of drumming up business; the undercurrent is all about marketing. Whether very much is learned in terms of the nominal subject matter of the gathering is sometimes questionable.

At the same time, guests from international officialdom may offer a few words, maybe drop tidbits to reporters, and journalists will have all their paraphernalia at the ready in a strangely routine kind of artificial excitement.

From a genuinely informative viewpoint, as opposed to media scrum, it might be only moderately satisfying.

Yet last week I attended an Islamic finance conference in the UK (accompanied by my own modest awareness of this field). The difference was that it was driven by academics rather than bankers and financiers, and the results of that distinction was startling.

Nearly thirty papers were presented among a relatively limited group of delegates from around the world at the JEBO Islamic Finance Conference, organised by Aston University, in association with Durham Business School.

Confluence of ideas

The relative intimacy of the setting allowed for a productive confluence of ideas. Each paper was explained by the author, then discussed and given a critique, often as much on the econometric aspects as the findings themselves.

As might be expected, some of the topics were very narrow, bordering on obscure, while others were of much greater relevance and resonance as to the real world.

For instance, a submission by Laurent Gheerart of the Universite Libre de Bruxelles was a study which found that the presence of a higher degree of Islamic banking promotes a higher level of financial sector development in terms of private credit as a proportion of GDP, and sizably so. The inference was that the relationship between Islamic and conventional finance is one of complementarity rather than rivalry.

Marwa Al Nahass of Lancaster University had investigated whether Islamic, and indeed conventional, banks had managed their income, and capital ratios, in tandem with loan loss provisioning, which should be a matter of interest to regulators. In the hinterland of that review was the idea that existing loan loss modelling had contributed to the credit crunch and needs revision.

Debate

Equally technical in its approach but particularly notable to investors was the paper offered by Jawadi Fredi of the University of Evry Val d’Essonne & Amiens. His analysis affirmed that investing in conventional stocks had been the more profitable in the pre-crisis years of recent times, but doing so in Islamic indices had been safer since then and better-performing overall. What to draw from that was a matter of debate.

Other presentations covered issues of banking performance and efficiency, bond ratings, derivatives, corporate governance, including board structure, mutual funds, the effects of political uncertainty on regional stock markets, and even an examination of the relevance of interpretations of Sharia to the development process in the Muslim world.

So it was a myriad concoction, as conferences tend to be.

In fact, what could be taken away overall related as much to manner as to content.

On the one hand, the determined detachment of the speakers from promoting ideas beyond what rigorous application of the data appeared to say was impressive. Whether there were agendas to advance favoured ideas was fairly well hidden. The dialogues seemed scrupulously devoted to the robustness of scientific technique rather than resulting message.

Reality checks

On the other, that very separation — particularly of the quantitative from the qualitative, of the apparently assumed superiority of data over supposition, over intuition and prior knowledge — might limit the impact or credibility of the deductions.

However, I would say that more was learned on the nominated topics than at the many industry events previously visited.

Certainly, in terms of developing understanding, bankers and academics probably need to talk more with each other on some kind of middle ground.

After all, as a generalisation, the conventional banking sector has arguably made a serious mess of things (and Islamic institutions were significantly exposed too in terms of portfolio management and risk), whereas the virtues of dispassionate research probably need to be moderated by reality checks to make its messages heard.

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