Last Thursday, UTM’s Li Koon Chun Finance Learning Centre invited Rehan Khan, a Liaison Officer with the Islamic Finance Advisory Board, to introduce students to Islamic finance and how it differs from conventional finance.
Approximately 25 students attended the evening event, where 15 were students from business-related programs.
Khan has an MBA in Islamic banking and finance from the International Islamic University of Malaysia, and a Bachelor’s in information technology from York University.
When Khan was in Malaysia, he worked as a research analyst and trainer for the Kuwait Finance House, which is one of the largest Islamic banks in the world. Currently, Khan is working with the Islamic Finance Advisory Board, which is a non-profit organization based in Mississauga. Khan helps promote Islamic finance through conferences and seminars throughout the GTA.
Khan began the seminar with the statement that “[Islamic finance] is not something new, it’s just something we aren’t exposed to.” Khan further added that the biggest misconception people have about Islamic finance is that they think that it is only for Muslims and no one else can practice it.
Khan then provided examples of how Islamic finance is being accepted by not only secular institutions, but also religious institutions, such as the Vatican, who approved of Islamic finance and even offered it to Western banking systems as a solution to the housing economic crisis.
“When I was studying in Malaysia, they said the biggest subscribers of Islamic financial products are not the Muslims in Malaysia, they are actually predominantly the Chinese—the business, the community. It was a very interesting fact for me,” said Khan.
Currently in the Western World, according to Khan, the United Kingdom is the centre of a growing and very influential hub for Islamic finance. The largest banks in the world “have their dual banking systems.
They have the conventional system and they also have [a] sharia compliant version of banking.”
“The United States today has more than three chartered banks that operate in a sharia-compliant fashion,” Khan continued. “Malaysia is considered as one of hubs for Islamic Finance.”
During the seminar, Khan emphasized three key points that highlighted the difference between Islamic finance and Western finance.
Islam’s objectives include safeguarding five things: faith, life, intellect, family, and wealth. In the Western finance system and Western society, debt is viewed in a bad light, uncertainty is seen as a normal risk in business, and in terms of interest, the giver would hate it while the receiver would want it.
The most forbidden acts in Islamic finance are interest and usury (i.e. an excessive amount of interest). Therefore, Islamic finance will never charge interest on any loans they give out, as it is against Islam’s ethical principles.
Uncertainty in Islam is another act that is looked down upon. This implies that one cannot sell something they do not own, or an item that does not exist.
“There is one key principle, either the delivery must be first or the payment must be first. If both are [delayed]. There is too much uncertainty.”
Islamic finance also encourages risk, because if there is no risk factor, there is no reward for that risk. Khan stated that “investing in bonds to get a fixed rate of return is not allowed […] but having fixed-profit sharing ratios are allowed”, because both parties together in the risk share the losses or gains from the business.
He then moved on to the concept of debt in Islam, which he proclaimed is a responsibility. Khan explained that the longest verse in the Qur’an talks about debt: “A good Muslim will pay on time, because this is not something that can be forgiven [but this depends on the circumstances of the person].”
During the Q&A session, students had questions regarding mortgages, student loans, and how banks make money in the Islamic financial framework.
Sanober Zuberi, a fourth-year commerce and finance student, expressed, “The reason why I’m at this event is because I don’t know a lot about Islamic finance […] I don’t know if it’s a system or is it just a service that’s offered to the Muslim community. I want to know what role it could play in a capitalist market.”
As Khan answered questions, he joked, “Money-lending is one of the highest acts of worship [for a Muslim]—the best part is [that] they can’t charge you interest.”