Arab and non-Arab Islamic countries, which together account for more than 20 per cent of the world's population, contributed only five per cent to the $60 trillion (Dh220.2trn) global economy last year.
One way to correct this imbalance is to forge an Islamic economic unity for Muslims around the world, according to Sheikh Tariq bin Faisal Al Qasimi, Chairman of Emirates Investment Group.
Delivering the keynote address at a day-long forum called "Islamic Economy and future aspirations" held under the patronage of Sheikh Sultan bin Mohammed Al Qasimi, Crown Prince and Deputy Ruler of Sharjah, and organised by the Sharjah Economic Development Department at Radisson SAS Hotel, Sheikh Tariq said: "Only by maintaining the welfare of all and giving opportunities to all can the Muslim nations contribute effectively to the world economy."
Calling for Islamic economic unity, he said it would enable Muslim countries to become a strong economic bloc similar to the European Union in order to contribute effectively to the economy.
Sheikh Tariq said governments in Muslim countries should focus their developmental policies and programmes on Islamic-based economic principles, which care for the profit and welfare of both governments and individuals, who are also considered important components of an economy.
On a note of optimism about the future of Islamic banking, which grew 4.2 per cent worldwide during 2007, he said: "This growth has no doubt positively influenced the world economy."
The Islamic economy is expected to grow by six per cent in the next few years, he said, especially after the recent introduction of many new Shariah-complaint products, such as "Takaful' [insurance] services, including 'life takaful'. It was important to set up joint Islamic banking projects and ensure diversification of Shariah-compliant products to help better contribute to the global economy, he felt.
Analysing the world banking market, Sheikh Tariq said Islamic Shariah-compliant products were being increasingly offered by foreign banks in the West because of the demand for these ethics and values-based instruments. The banks offering them have attracted billions of dollars, he added.
"The largest volume of 'sukuk' product in the world is offered by a Western bank. Muslim countries and Islamic banks should take note and work actively to increase their market share in the segment," he said.
Some of the largest Muslim counties in terms of population, such as Indonesia, Pakistan, Bangladesh, Iran and Malaysia, urgently need to apply the principles and practices of an Islamic economy, he said and added that as all these countries were non-Arab, it would help dispel the notion in their peoples that Islamic finance was an Arab venture.
On the whole, Sheikh Tariq said, the Islamic economy was moving in the right path and was growing rapidly, whether in Muslim or non-Muslim countries, through the setting up of Shariah-compliant banks. Foreign banks that offer Islamic products have also created special divisions for these services, he said.
"The first Islamic bank was set up just 30 years ago and now there are about 300 Islamic banks in 75 countries around the world with about $300bn in assets. This is a rapid growth and all indicators show that Islamic banking and economics are developing and spreading fast," Sheikh Tariq said.
However, the GCC countries, which are awash in liquidity, should work jointly for the quick spread of the Islamic economy and banking. "We should work hand in hand to be able to compete and influence the world's economic growth," he said.
He said there was a need to have scholars of Islamic banking study the different fields of business and generate appropriate Shariah-compliant products.
Coming to a more personal level, he said: "If each Muslim individually applied the principles of the Shariah in his economic dealings, our countries could easily have Islam-based economies."
The UAE is a pioneer in Islamic banking through several such institutions already in operation in the country.
Sheikh Tariq cited the examples of Dubai Bank, Al Noor Islamic Bank, Sharjah Bank, Al Hilal Bank, Emirates Islamic Bank, and Bank of Ajman as some of the Islamic banks that have either opened in the country or converted into Islamic entities from regular ones.
Also, many government and semi-government companies in the UAE are offering Islamic banking products, such as Dana Gas and Nakheel. "The demand for Shariah-compliant products is not from the government but also from private sector establishments and individuals," Sheikh Tariq said.
Aiming to spread Islamic banking in non-Arab Muslim countries, where there is a strong competition, the Emirates International Group set up a bank in Pakistan a year and a half ago, which now has 15 branches.
Islamic finance to reach $1trn mark
Islamic finance is expected to garner one fifth of the world's investment industry this year, on the back of fast growth that may see it cross the $1 trillion mark (Dh3.67trn), according to an Islamic banking expert in the UAE.
Dr Mabid Al Jarhi, Financial Expert and Head of the Training Unit at Emirates Islamic Bank, said the volume of Islamic finance, which was $62 billion in 2001, reached $500bn last year and is expected to double by the end of this year.
Many costumers prefer Islamic finance over traditional financing systems because it is more stable as both the clients and the banks share the risks and are both involved in decision making. In traditional finance, the risks include information asymmetry and wrong selection of the applicant who might be incapable of repaying the debt, which would end up as a loss for the bank, Al Jarhi said. Also, the money lent often ends up being used for purpose other than what was stated by the applicant.
Islamic banks, on the other hand, play their role in ensuring the cohesiveness of the society by ensuring fair distribution of wealth, profit for all parties and a general economic boom, he said. To achieve this objective, Islamic banks should develop projects and initiatives to ensure the implementation of the Islamic takaful.
Citing an example, Al Jarhi said initiating a strategic alliance between Islamic bank and charitable societies was necessary. Such an alliance should aim to set up small business and their returns would support poor people and provide job opportunities.
"Eliminating poverty is a key factor for Muslim countries to contribute to the world economy," Al Jarhi said.
Al Jarhi, who is also the President of International Association for Islamic Economics, London, and an Executive Secretary of Shariah Board-Dubai Financial Market, said such projects would also help increase the confidence in Islamic banks and subsequently would attract businessmen to pay their 'zakat' money [almsgiving] through Islamic banks. This would result in asset increases.
Al Jarhi called on Islamic governments to use Islamic banks for managing endowments made by rich people so that such assets can be used wisely to generate profits for all. At present, Islamic governments treat endowments as frozen assets.
Dr Hatem Al Qarnashawi, Dean of Qatar University and Professor of Economics and Finance of the Islamic Studies department, said Islamic countries should have their own economic vision and tools and not adopt ideas from Western economies.
Al Qarnashawi was the former economic advisor to Egyptian prime minister and is currently a member of the Central Bank's Board of Directors and deputy governor of the International Monetary Fund in Abu Dhabi. Giving an example, he said that in the past Western economies stressed on a tight central control of the economy and services. Then there was a call for privatisation. However, calls for re-centralisation have already begun in the West
"We as Islamic countries should have our own vision based on Islamic principles," he said. "Moreover, these economies have developed different assessment tools and indexes, but do they suit us? For example, Western tools and indexes have measured our economies' openness and did not care to measure how far our economies served our countries and people. The tools were developed by these countries from their own perspectives, and not from ours.
"So we should have our own assessment indexes and tools to help our countries frame proper rules and regulations and develop new services based on our own economic visions, plans and programmes," Al Qarnashawi said.
Islamic countries should also take into consideration that the Western economic models have failed to solve many economic problems and crises and so are not entirely reliable. "They have failed to solve economic shortcomings as is the situation with the US economy now. So of what benefit will they be to us?" he said.
Ali bin Salem Al Mahmoud, Director General of Sharjah Economic Development Department (Sedd) said Shariah-based economics and banking has proved extremely able in solving a lot of vexing problems. It is a system that does not contradict with other systems but adds a more integrated and cohesive aspect. "It maintains the institutional welfare and at the same time safeguards the welfare of the individual," he said.
"The growth of this type of investments will significantly contribute to the UAE's growth as it will open new vistas for development. The Islamic economy is flexible and in compliance with our beliefs," he added.