East meets West to offer new financial system
IRELAND could become a centre for financial investment worth billions of euro if a number of regulatory measures are brought in, a conference was told yesterday.
The country could be a hub for Islamic Finance (IF), a financial system that provides products and services that comply with Sharia principles.
IF differs from western finance in several ways. Banks are not allowed to charge interest on loans, while investors cannot put money into business related to gambling, pork or pornography.
Islamic finance laws would prevent investing in a listed supermarket chain if it had pork products on its shelves, for example.
The laws also prevent traders using certain derivative products, including credit default swaps and short selling as a form of gambling.
Despite those differences, Dr Mohd Daud Bakar, an IF scholar and businessman, believes they can be easily surmounted and Ireland can become a centre for a market worth well over $1trn.
"The differences between Islamic Finance and the 'western' financial system are small, maybe 5pc, and can be reconciled with small changes to legislation," he said.
"This is not a case of giving IF preferential treatment, it is a case of putting IF on a level footing with the conventional system.
"For example, if a person borrows €10,000 from a bank here (for a car), they might repay the €10,000 plus €500 interest.
"In the Sharia system, which does not allow interest, the bank would buy the car for €10,000 and sell it to the person for €10,500, which the bank is providing the loan of €10,000 for.
"The result is the same -- the bank has lent €10,000 and is receiving €10,500 but the method was totally different. The problem with it is potentially a tax issue.
"Because the IF method involves two purchases, then as it stands, both transactions would be taxed. Therefore we would like to see legislation to correct this discrepancy," he said.
"If Ireland could make a number of small changes to its legislation, such as this, then it can become a centre for IF, like the UK and Germany," he added.