Syariah-based investments victim of global meltdown

FIRST, a snapshot of the basic guideline of Syariah-based/originated investments and transactions. That is Islam totally forbids any dealing in interest or riba, pork and pork-related products and services, pornography, alcohol, dangerous drugs, monopolistic control and hoarding, gambling, even consumption of tobacco which impairs health and rationality, and other things and activities which Islam considers abhorrent.

Islam does not forbid diversification of Islamic assets in approved countries and categories of investments and transactions.

Islam is global. Islamic finance, banking and economics are increasingly global.

Second, the world is now considered as a borderless global village. Internet, websites and TV provide instantaneous communications, 24 hours, all year round. Thus finance/banking transactions are globally instanteneous. There is no practical, physical barrier against any news, and occurrences: The global village is now experiencing its worst financial meltdown which originated at Wall Street, has quickly spread to the main street of the US, and now has caused and are continuing to cause financial/banking ruins in the major economies of the globe, and has ruined and will continue to ruin the real economies of both developed and developing countries. Unlike computer technology, being a borderless global village, there is no "firewall" to stop or contain this ruinous contagion — no security control, no immigration control, no customs control.

Third, this confluence of financial/banking ruin and the ruin of real economies has resulted in serious socio-economic hardships in those affected countries, for example the sudden increase in unemployment in, for example China, the UK and Europe has led to grave socio-political concerns; investment values almost obliterated.

Fourth, the financial meltdown, the burst of credit bubble and the tanking global economies have destroyed the stock market values of established giant companies and the wealth values of those millioners and billioners . For example, the recent victim is the giant multinational Citigroup; its stock market value of US$274 billion at the end of 2006 is now about US$26 billion. (The Strait Times, Nov 22, 2008).

One of the most and sought after investor, Warren Buffet, has not escaped the financial destruction. His Berkshire Class A shares fell to US$74,100/= on 20-11-2008 from their record US$151,650 in Dec 2007.(The Strait Times, Nov, 22, 2008).

Investors in the US stock market have lost more than US$9 trillion since its peak a year ago. (The Wall Street Journal [Asia], Nov 21,2008). Dubai has for the first time been hit by a credit crunch. This has caused completion problems to its mega building projects (BBC News, Nov 27, 2008). In Dubai, every thing is mega, so its financial problems could be mega. So is Russia, its skyscraper mega projects have experienced credit crunch.(Aljazeera, Nov 29, 2006).

The combination of the above negative situations has made millioners and billioners of the borderless global village less wealthy, and its poor people more desperate and hungry.

For example, the richest man in UK, Mittal, the steel magnate, has been reported to have lost about 51 per cent of his "paper wealth". The global dire financial and economic consequences knows neither border, race, colour cultures nor religion, and so it knows neither halal nor non-halal, neither rich nor poor.

The bird flu and the foot-and-mouth diseases are pandemics that know no border for halal, neither kosher nor non-halal procedures, processes and consumption.

When the Titanic sinks it takes down almost everybody on board to their ocean grave, Muslim or non-Muslim.

Having adduced the random cases and analogies above as the background of this discourse, now we want to sort the wheat from the chaff. Thus, Standard and Poor's assessment that "more than US$5.6 trillion ($8.4 trillion) has been wiped out of Syariah-complaint equities worldwide during the third quarter of 2008" was in fact those approved Syariah investments, transactions in those Syariah-approved selected global markets and categories. The US, UK and Europe are the traditional Syariah-approved countries in which to invest and transact businesses as per that halal guideline, mentioned earlier above.

That Standard and Poor's assessment of "more than US$5.6 trillion ($8.4 trillion) has been wiped out of Syariah-compliant (read: approved) equities worldwide" may be made clearer by adducing this analogy: It is just like shopping at an international supermarket, say, in London. As a Muslim you naturally choose and pick the products which Islam permits you to use and consume. You closely scan the ingredients printed on each products. But when the supermarket is destroyed by a great fire, if not all, most of the Syariah-permitted products may have also been destroyed.

Thus, likewise those Syariah-approved investments and transactions could not have escape such "indiscriminate" worst global financial/banking meltdown and consequent downturn in the real economies of the globe.

To be specific, how could those Syariah-approved investments in the "global village market" escape unscathed when:

that "Titanic" US stock market has sunk into that more than US$9 trillion in the meltdown since its peak a year ago?

that explosive increase in the paper value of US$668 trillion of the financial derivatives industry has imploded and consequently devastated about 60 per cent of its paper value?

that the price of oil (and of course our own oil) has sunk to US$51 per barrel from its US$147 per barrel peak in July 2008?

that price of gold has sunk to US$705 per ounce from its peak US$1,033 per ounce in March, 2008?

even gambling casinos have crashed mirroring financial/banking burst? (For example, share value in Wynn Resorts fell by 60 per cent, MGM Mirage lost 86 per cent, Las Vegas Sands collapsed by 95 per cent) (Re: The Edge, Singapore, Nov 17, 2008)

even US university endowment funds have suffered similar fate, average fall by 30 per cent? Until the meltdown those funds had been performing at an average of 12 per cent to 15 per cent (Re: The Edge, Singapore, Nov 17,2008)

even those rich countries' sovereign wealth funds (SWFs) with a portfolio structure of 25:45:30 split over bonds (25 per cent), equities (45 per cent) and alternative investments (30 per cent) — reflecting flexibility — may have suffered total paper losses of 25 per cent to 35 per cent? (The Edge, Singapore, Nov 17,2008)

hundreds of thousands of workers have suffered retrenchment and the figure is expected to increase to millions of job losses next year?

All in all, in a inter-related global village web of financial/banking operations and real economic transactions almost no one could have escaped or hidden from "this financial/banking and real economic crisis of historic proportions". (To borrow the words of US President-elect Barrack Obama). (The Strait Times, Nov 26,2008).

Thus, in view of those dire occurrences how could those Syariah-approved investments, which have diversified its investments in approved halal products, services, transactions in those countries such as the US,UK and Europe, have escaped those debacles?.

Hence, it is not complicated to understand why "that US$5.6 trillion has been wiped out of Syariah-compliant (read:selected and approved) equities".

Therefore it is neither the weakness, nor due to any shortcomings or deficiencies of the Syariah principles, tenets and system when those Syariah-approved investments (in equities) got collectively sucked into the violent financial and economic vortex and got drowned together with those non-halal investments.

To unravel why the Islamic Finance has been wrongly "indicted" as being not as straightforward as it should have been, it necessitates a "historical finger pointing" to defend the veracity of Islamic Finance.

Fortunately the required robust defence of Islamic Finance, has for months, even for years, been voluntarily done by those American and European economic, financial experts, writers and commentators, on TVs, in books, economic/financial magazines and newspapers.

For example, The Brunei Times has been regularly carrying those experts' observations, warnings, advice and recommendations on the causes of this massive financial-banking-economic failure.

For example, those serious books such as "Infectious Greed"by John Nofsinger and Kenneth Kim (2003); "Greenspan's Fraud~How Two Decades of His Policies Have Undermined The Global Economy" by Ravi Batra (2005), now a book "Greenspan's Bubbles~The Age of Ignorance at the Federal Reserve" by William Fleckenstein and Frederick Sheehan (2008), have given convincing evidence that Allan Greenspan, as the former Fed Chief, got US and the world into this very destructive, painful mess.

Thus Islamic Finance is clearly the innocent victim which through its Syariah guideline directly and indirectly has been supporting those economies of the US, UK and Europe as has been outlined above, but tragically got caught in the global meltdown.

Hence it is vital to point out here the clear difference between those Syariah-approved investments and transactions and their geographical diversification, (for example the US, UK and Western Europe) and those Syariah-based/originated investments products and transactions, such as direct investments in cattle to be slaughtered as halal products; RBA/RBC halal services and food products. Halal hotels and restaurants, our schools and universities, and so on.

According to The Brunei Times report entitled "Syariah banking system strong" (The Brunei Times, Oct 27, 2008) there "are more than 300 Islamic financial institutions worldwide and the sector is valued at about US$1 trillion ($1.45trillion), just a fraction of the conventional global banking industry."

(In September 2006, AFP London, estimated Islamic based/originated finance was between US$300 billion and US$500 billion. In 2004, it was only US$200 billion).

This US$1 trillion value was therefore the value of Syariah-based/originated or bonafide born investments and transactions. Certainly it is different or separate from that US$5.6 trillion which has been wiped out of Syariah-compliant equities worldwide.

It is now clear that the US$5.6trillion in equities which have been wiped out were the approved Syariah investments universe diversification in this global village.

If a rough average of the financial/investment debacles have caused 50 per cent losses globally, that would mean between US$11 trillion to US$12 trillion have been the original Syariah-approved investments diversification in equities globally.

In conclusion, we must be always cautious and discerning in interpreting any information or statistics on Syariah-based/originated funds/investments/transactions and those Syariah-approved investments and transactions being diversified in the global markets.

Both are rambutan fruits, but of different varieties.

Yang Dimuliakan Pehin Orang Kaya Lela Raja Dato Seri Laila Jasa Haji Awang Abdul Rahman bin Haji Abdul Karim DSLJ, PJK was formerly Permanent Secretary of the Ministry of Finance and the Ministry of Defence. The views expressed by Pehin Dato Rahman Karim are his own and do not necessarily reflect those of The Brunei Times.

The Brunei Times