Who's Afraid of Islamic Finance?

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While Tunisia's Islamist party tries to downplay the role of Islamic finance, Hong Kong welcomes it with open arms. Why?

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Leung Chun-ying, Hong Kong's new chief executive (left) and Rached Ghannouchi, Ennahda Party leader (right) / Reuters

Tunisia's newly elected Islamist government said this week that it will preserve the nation's pre-revolutionary secular constitution and financial structures. Far away, in secular and wealthy Hong Kong, the local government is pushing to establish a platform for Islamic finance in hopes of becoming the Dubai of the Far East. What's going on here?

Witness the power of marketing. Tunisia's main source of tourism and exports is Europe, where perennial outcries against Muslim immigrants and sharia have incited violence among Europe's anti-Islamic extremists in recent years. Hong Kong, together with the Greater China Region, is courting the Muslim business world to quench its thirst for natural fuels. As a result, we have an odd juxtaposition: An Islamist government downplaying gestures to welcome Islamic finance while a secular capitalist juggernaut claims to welcome it.

QUR'ANIC FINANCE 101

Islamic finance largely revolves around a Qur'anic prohibition on usury -- taken to mean all forms of interest by modern practitioners. Instead of dealing in non-tangibles like interest and credit, the system bases loans on collateral and treats moneylenders -- a pejorative term in Islamic scriptures, as well in Jewish and Christian scriptures -- as "investors."

For example, in an Islamic mortgage, a bank purchases the prospective homeowner's property from the realtor. Instead of charging the homeowner interest on a loan, the bank calculates a fixed service fee, to be paid in increments.

"It's a pretense that you are not lending money, but in effect, you are," said Farid Abolfathi, a Middle East economy expert at international consulting company IHS Global Insights, explaining that the economic benefit of Islamic finance is, for the most part, allowing Muslim business interests to "participate in the financial system without feeling they are doing anything wrong."

WELCOMING WALL STREET IN TUNISIA

This week, Tunisia's ruling Ennahda Party promised the international community the Tunisian constitution -- and economy -- will remain secular. The party has made that painfully clear. Just after winning the Tunisian Constituent Assembly election in October, Nahda representatives first promised international investors  there would be no Islamic renaissance in the nation's financial sector, and they made the same promise at this year's World Economic Forum in Davos.

The Tunisian economy has long depended on European tourism and investment to grow its economy.

"There are people who want the old, secular model of banking. That system will continue, because it is internationally accepted," said Walid Banneni, vice president of Ennahda, on the phone from Tunis.

Banneni explained that a secular financial infrastructure is one of few "achievements of the [ousted] Ben Ali regime" that will remain intact. "[We are] not trying to not alarm others into thinking these guys are radicals or are likely to upset the equilibrium of society," he said.

Although he believes that Europe is developing a more nuanced understanding of Islamic Finance, Ennahda's Banneni believes there is a still stigma on Islamic law in the West.

"As for their fear of sharia, the West is afraid of something else. They don't know sharia," he said. "They think it's cutting off hands and things like this. The objective of Islam is openness, transparency, equality between men and women, objectivity, and justice."

But Ennahda, for all of its denial of Islamic finance for Western audiences, isn't against it at all, and plans to push for more retail Islamic finance as an option for pious Muslim Tunisian nationals in the future.

"There are two banks currently offering Islamic financial services in Tunisia. The terrain is prepared and we have experts who could put these practices into place... Banks in Tunisia just need to know how to implement these [offerings] little by little," Banneni said. "We are just opening another opportunity, without constraining or forcing anyone to observe this model."

Like many believers in Islamic finance, Banneni feels its principles could have prevented the global economic crisis, by preventing a credit bubble. He explained that dealing in credit and interest can serve to enslave the impoverished to debt, and that loans in the form of foreign aid have continually pushed developing countries down. Islamic loans are based on collateral, in what the practitioner sees as a buttress to chronic debt.

"It's a benefit for humanity," said Banneni, "It's already known that Islamic finance can solve ongoing international problems with the crisis."

WELCOMING SHARIA (OR PARTS OF IT) IN HONG KONG

While Ennahda works to downplay its gestures to provide Tunisians with retail-level Islamic finance, Hong Kong struggles to develop an Islamic bond market that will welcome business from the cash and natural resource-rich Arab Gulf.

"We aim to develop a wholesale Islamic capital market in promoting Islamic finance in Hong Kong," said a spokesperson for Hong Kong's Bureau of Financial Services and the Treasury (FSTB). An Islamic capital market has been a project of Hong Kong's since the concept was first introduced into the Special Autonomous Region's Legislative Council in 2008. Only recently has Hong Kong chosen to make formal gestures to overcome legislative red tape to see the market established.

Meanwhile, Hong Kong University has been one of many institutions for higher learning in the region to establish a degree program in Islamic finance, in preparation for the Dubai-esque Muslim business hub to come.

Muslim nations like Kazakhstan have been key players in the Greater China Region's economy, both by fueling China's burgeoning economy with natural resources and with cash inflows. Last year, several Khazakstani companies posted IPOs on the Hong Kong Stock Exchange (HKSE).

"Offering Islamic financial services might better welcome business from the cash-rich Gulf, where there is often social pressure to borrow the Islamic way," said Global Insight's Abolfathi.

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Massoud Hayoun is a digital-news producer for Al Jazeera America.

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