The future of global Islamic banking industry, running into billions of dollars, offers continuing promise and cannot be overlooked.

A plan put across by Iran’s new Central Bank governor last month to eliminate profit rates on loans to encourage “real and genuine“ banking services, once again raises some frequently discussed questions in relation to Islamic banking.
Since the 1979 Islamic Revolution, Iran has time and again tried establishing the world’s purest system of Islamic banking and finance.
As reported by Ft.com, it is no surprise that Tahmasb Mazhari, a former finance minister and now Iran’s Central Bank governor, has chosen to promote the most ideal form of banking.
It is also no surprise that bankers who have had experience with the Islamic Republic have more questions than answers concerning Mazhari’s plans.
The fundamental spirit of Islamic banking is not averse to a profitable return on an investment. It is just opposed to the idea of pre-determined returns, such as interest paid on deposits, which is considered akin to usury. Additionally, there are bans on investments in businesses dealing with alcohol or gambling, for example.
Consequently, a number of Islamic countries have chosen to allow the concept of profit and loss sharing for Islamic bank depositors and borrowers--a method considered acceptable to scholars of Islamic Sharia or jurisprudence.
Mazhari’s dilemma may be that in pushing for pure Islamic principles to deal with returns on loans, he may end up pushing banks to slash their interest rates, known as profit rates in Iran, to the point that they lose out heavily in financial terms.
President Mahmoud Ahmadinejad has already aroused concerns among bankers in Iran when he called on them to give cheap loans to people on low incomes. He has even gone to the extent of calling for banks to slash their profit rate on loans to below that of Iran’s inflation rate.
It is far from clear if Mazhari’s model for Iran’s banking system and Ahmadinejad’s plan for his country’s financial system will succeed.
In practical terms, it is impossible to force banks to offer rates below prevailing inflation rates. It is also difficult to imagine depositors willing to leave their money in banks returning less than inflation.
The Iranian model envisaged by the Mazhari/Ahmadinejad combination may work in a limited way for the Islamic country that has overseen a larger flow of oil-related revenue in recent times, thanks to the high global oil prices. But the model of pushing banks to effectively subsidize their loans to low income groups will just not work in countries that are not similarly endowed with oil wealth.
A globally acceptable regime covering Islamic banking and finance will succeed only if it is built upon three important pillars.
First, banks involved in Islamic finance cannot be expected to subsidize officially inspired ideas such as offering below-inflation rate loans, while also remaining profitable. What they can be reasonably expected to do is follow a genuine interest rate policy set by their respective central banks, without influence from politicians.
Second, the promotion of Islamic banking and finance must be built upon the bottom line view that depositors need to be sure of a certain return over a given time period. The purists in the business of Islamic finance often find such suggestions to be completely unacceptable.
Yet there are many examples of countries where the enforcement of a profit and loss sharing regime would raise concerns among depositors. For instance, there are no easy solutions in such countries with weak systems of accountability, where borrowers could declare a loss at the end of a pre-agreed time-frame even if they actually made a profit.
Finally, the business of Islamic banking and finance cannot be seen as a source of social good in the interest of banking sector. In Iran, recent remarks by the Central Bank governor and the president appear to suggest an ambition to turn banks into providers of subsidized loans for the poor.
There may be a case for promoting opportunities for the economically deprived. However, banks cannot be forced to become providers of such subsidies; this is a role for specialized institutions such as microfinance banks, or government departments responsible for social services.
Given the many issues confronting policymakers, bankers and depositors faced with the challenges posed by practical realities, Islamic banking in the Iranian style is unlikely to make much global headway.
But the future of the global Islamic banking industry still offers continuing promise. The sheer size of the industry, running into billions of dollars, cannot be overlooked.

Will French investigators get to the bottom of the story of potential insider trading at EADS, the European Aeronautic Defence and Space company?
According to Economist.com, executives at CDC, a state-owned bank, appeared before the National Assembly’s finance committee on Tuesday October 9th to answer questions about their role in the affair, and before the Senate finance committee the following day.
On October 11th, a separate internal inquiry into the part played by the finance ministry, ordered late last week by Christine Lagarde, the current finance minister, is due to report back on its findings.
Under discussion are two critical questions. Did executives at EADS, the parent company of Airbus, know about the delays to the construction of its new A380 superjumbo, which emerged publicly only in June 2006 and prompted a 26 percent plunge in the EADS share price, when they exercised stock options in November 2005 and March 2006? Secondly, did the state also know about these troubles when CDC helped Lagardere, another industrial group, to offload part of its 7.5 percent stake in EADS in April 2006?
Last week it emerged that France’s financial-market regulator had handed documents about its ongoing investigation into the affair to French prosecutors. The preliminary note, obtained by Le Figaro newspaper, showed the inquiry was focusing on the role of 21 executives--far more than it had previously been thought were under investigation.
They include both the two co-chief executives at the time, Noel Forgeard and Thomas Enders, and the two then co-chairmen, Manfred Bischoff and Arnaud Lagardere, who is also head of the Lagardere group. Although he insisted he was innocent, Forgeard resigned in July 2006, and was awarded 8.5 million euros pay-off.
Now attention is turning to the part played by the government at the time. In November 2005 Lagardere and Bischoff, of DaimlerChrysler, told Thierry Breton, then French finance minister, that they each wanted to reduce their stakes in EADS, but by different amounts. This was problematic, since it would upset the fine political balance between the French and German shareholders in the group; discussions began between the two governments over how to resolve this.
In January 2006, says Breton, he read a note by the public Agency for State Shareholdings, recommending that the state reduce its own stake in EADS as the company would soon enter “a zone of turbulence“. Breton says he decided for strategic reasons not to follow its advice.
Last week, Breton insisted that this note contained no new information about the delays to the A380, but was based on an independent evaluation of its share price and business outlook.
The government, he added, played no part in subsequently getting CDC to buy part of the Lagardere shareholding, which it did in early April 2006. The state itself, Breton recalled, never sold any of its own shares in EADS.
Nonetheless, the affair looks fishy. Philippe Marini, the Senate finance committee rapporteur, said that he found Breton “transparent“ and “honest“ but “not convincing“ about the role of the state. Francois Chereque, a union leader, was less charitable: “Either he’s lying, or he’s incompetent“, he declared.
The new twists to the saga come at politically difficult time. Airbus is undergoing a restructuring program, which includes shedding 10,000 jobs across Europe and closing several plants. And President Nicolas Sarkozy, who has promised to reward hard work and “remoralise“ capitalism, is facing popular discontent about wages and purchasing power.
Indignation at the alleged behavior of French executives will only nourish a general feeling that bosses are not only overpaid, but get away with financial abuse scot-free.

The current civil and political situation in Myanmar presents an opportunity for several major powers, namely Russia, China, India and the United States.
Of these, Moscow has been working in concert with China to maintain the status quo in the country in order to preserve Russian interests, reported Pinr.com.
For Russia, Myanmar holds a special economic interest since, during the past few years, it has entered into various business dealings with the country. In May, for example, nuclear equipment export monopoly AtomStroyExport forged an agreement to construct a nuclear research center in Myanmar.
Leading foreign energy trade company Zarubezhneft, natural gas producer Itera, and Silver Wave Sputnik Petroleum are currently producing Myanmar’s off-shore oil deposits alongside the Chinese company PetroChina, after forming a link with the south Russian republic of Kalmykia.
Additionally, Myanmar purchased 15 Russian MiG-29 Fulcrum fighters for approximately $150 million in 2001. Furthermore, it is negotiating with Russia’s state-controlled arms exporter Rosoboronexport on the establishment of an air defense system using the Tor-M1 and Buk-M1-2 missile systems. These business dealings, with a special emphasis on the energy related deals, are especially important to Russia.
Russia, which is currently one of the leading exporters of natural gas, is on the path to achieving a monopoly on energy throughout Europe and is most likely utilizing Myanmar and its oil and natural gas deposits (which it has gained access to after having negotiating the placement of the aforementioned air defense systems) to further its goals of monopolizing Europe’s energy industry and possibly expanding its economic and political interest into the East.
It is also important to note that the air defense systems will serve other purposes, such as establishing bases to counter growing Chinese power or US influence.
Demonstrating Russia’s position on Myanmar is a recent Foreign Ministry statement that warned that “urgent steps must be taken to prevent the escalation of tensions“ in Myanmar. The statement demonstrates that Russia supports an urgent response to stop the escalation of hostilities; however, the purpose of an end to hostilities is simply to reestablish a measure of stability in Myanmar, for Russia does not support the implementation of sanctions against the country, which could work to cripple the ruling junta.
In essence, Russia’s interests are the stabilization and continued unsanctioned existence of Myanmar’s ruling government, so that Moscow can continue to acquire Burmese oil and retain a stable ally in the region.
Opposition to this policy has come from several sources, one being the United States, which has called for immediate action and sanctions against the military junta in Myanmar. One reason for the United States to push for a change of government in Myanmar is to undermine Russia.
If the current regime in Myanmar is disposed, it will be possible that a democratic government will come to power and seek better relations with the United States and its allies. The possibility of a democratic government, and its possible disposition toward friendly relations with the United States, is also an important driving force behind Russia’s and China’s actions in Myanmar.
Another source of opposition has come from India. The reason for India’s involvement is the veritable backstab by Myanmar concerning the removal of India from the status of “preferential buyer“ in regard to the off-shore oilfields off the coast of Myanmar.
After removing India from preferential buyer status, the junta entered into negotiations with Russian and Chinese oil companies.
Possible Indian interests are limited at best since it has been pushed aside by China. It is most likely that the Indian government opposes Russia and China in an attempt to maintain some form of business relations with the small Asian country.
Currently, with the lack of harsh or committed rhetoric, it is difficult to tell what actions and strategies Russia will adopt when taking action around Myanmar. It is not clear whether or not its strategy will be an active intervention or a more passive campaign of rhetoric. It is also difficult to tell as to whether the involvement of India and the United States will play a significant role in the situation at hand.
It is clear, however, that Russia has extended economic interests in Myanmar that it considers critical to its
interests.