Dato’ Yusli Mohamed Yusoff
13 July 2012
Islamic Finance and Halal
Currency as an enabler
for Halal Trade
Islamic Finance and Halal Currency as an enabler for Halal Trade
Introduction
● What role for Islamic Finance & Halal
Currency in development of Halal Trade?
● Global Islamic Finance Industry estimated
at USD 1.4 trillion (GIFR 2012).
● Global Halal Industry estimated at USD 2
trillion (AIF 2012).
Islamic Finance evolution
● Islamic Finance evolved out of need for
alternative financial products catering to
Muslims.
● Promotes transparency, justice, fairness and
honesty in commercial transactions.
● Prohibits unfair/oppressive practices like riba
(interest/usury), gambling, cheating as well as
uncertainty in contract.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Islamic Finance growth potential
● Growing Muslim middle class population.
● Gaining wider acceptance due to commercial
viability & universal values as well as disillusionment
with conventional economic & financial system.
● Can provide guidelines for managing a good
economy, stimulating development, realising
socio-economic justice and promoting employment
and stability.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Islamic Finance global growth
● Leading Islamic financial centres are Malaysia &
the Middle East - Iran, Saudi Arabia, UAE, Kuwait,
Bahrain.
● UK is leading developed western countries in Islamic
Finance. Others such as Japan, France, Germany also
looking at reforms to facilitate Islamic Finance.
● Non Muslim customers attracted to ethical &
environmental basis of Islamic Finance.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Islamic Finance new markets
● Asia has largest Muslim populations mainly in
Indonesia, Pakistan, Bangladesh and India.
● New non - Asian markets also growing -
Russia, CIS countries, Africa, USA have sizable
Muslim populations.
● Kazakhstan became first CIS country to
introduce legislative amendments for Islamic
Finance.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Islamic Finance potential
● Need to look beyond asset financing & provide
more support for real trading activity.
● To play a more developmental role as concept of
sharing risks & returns can help protect &
nurture businesses.
● Can help ensure production of Halal goods are
funded in a Halal way as currently most Halal
producers are funded by conventional finance.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Halal currency
● Conventional banking is a riba (interest/usury)
based system where central banks can diminish the
purchasing power of paper money. This is not
Islamically or morally acceptable.
● According to Islamic law, the Islamic Dinar is a coin
of pure gold and the Dirham is a coin of pure silver.
Precious metals cannot be inflated by printing more
money nor be deflated by government decree.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Halal currency in use
● Certain communities are using gold dinars &
silver dirhams in commercial transactions,
payment of zakat as well as for savings.
● Dr Mahathir had urged Muslim countries to use
gold dinars for international trade as a means to
reduce impact of excessive speculation in
currency trading on the values of currencies.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Conventional currency
● Paper money has no intrinsic value.
● Exchange rates are arbitrary and subject to
manipulation by currency traders.
● Dr Mahathir : Currency trading is unnecessary,
unproductive and immoral.
Manipulative speculative trading of national
currencies led to economic chaos during the
Asian Financial crisis in 1997/8.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Halal currency potential
● Gold dinar has definite value based on global
demand for the precious metal.
Fluctuation in gold prices will be less volatile
and risk of manipulation will be minimal.
● Dr Mahathir : World trade can actually expand
with the use of the gold dinar as cost of business
will be much reduced as the need to hedge
currency fluctuations would practically
disappear.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Islamic Finance & Halal Trade
● Excess liquidity in Islamic Finance needs to
find new sectors to generate good returns yet
remain shariah compliant.
● Emerging convergence of Islamic Finance &
Halal Trade as both belong together – they
address same market, share same values and
same lifestyle.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Halal Trade
● Islam permits & encourages Halal trading
activities.
● Halal trade covers entire spectrum of Halal
products & services.
● Products should be produced in a Halal way &
sold in Halal venues in accordance with Halal
transactions with Halal currencies.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Halal Trade growth potential
● Represents a very large & rapidly expanding
market segment with 2 billion consumers.
● Halal food is example of impact of Muslim
consumption on global food industry.
● Food producers especially meat producers
have made conscious decision to go halal to
meet growing demand.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Halal Trade & Islamic Finance
● Most Halal producers are non-Muslim & have
developed their businesses using conventional
financing.
● Halal trade has developed independently of
Islamic Finance but signs of emerging convergence.
● Opportunity to develop a Halal Economy based
on Islamic Financial principles and qualities of
Halal.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Conclusion
● Islamic Finance should seriously look at Halal
Trade as demand outstrips supply in sectors
like Halal food with annual growth rates of
15- 20%.
● To ensure the whole production process for
Halal goods is Halal, the source of financing
should also be Halal ie Islamic Finance.
Islamic Finance and Halal Currency as an enabler for Halal Trade
Conclusion
● Islamic Investment in the Halal food sector
would boost agricultural output in poorer Islamic
countries, help investment in promising Halal
food SMEs as well as participate in some of the
global food players.
● This would be a way for Islamic Finance to
become a real enabler and driver in the real
economy.
Islamic Finance and Halal Currency as an enabler for Halal Trade
THANK YOU