Islamic banking versus conventional banking

Contrary to popular belief, Islamic finance or banking is not just for Muslims. It aims to lay the foundations of an ethical and fair financial system, which consequently affects the socio-economic conditions of the market it is implemented in. Islamic financing, hence, can aptly service everyone irrespective of religious beliefs, wealth, ethnicity, caste or creed.

Yet, this stance is not as clear as it should be in our country; much less in the outside world where centuries old financing methods are firmly embedded within the economic system.

One of the reasons for this lack of awareness is that the concept of Islamic banking has been commercialised fairly recently. Banks and asset management companies in Pakistan are still struggling with how better to portray Islamic products for consumers’ understanding in minimal ad spaces. There is also a communication gap between the Shariah councils issuing the fatwas pursuant to Islamic Finance, and the managers drafting the advertisements.

A recent survey published in a popular monthly magazine stated that most respondents did not know the difference between conventional and Islamic banking; and that most thought that various advertised ‘Islamic Funds’ are only a marketing gimmick.

But a bigger issue – one which I have experienced personally – is that even financial advisors lack awareness of the concepts behind Islamic finance. I recently asked a finance expert – while deliberating the merits of funds in which I wished to make some investments – the difference between conventional funds and Islamic funds. He answered with a disappointing “nothing!”

For someone who does their homework is keen on not consuming any interest-related income enter, there is a difference. This expert will just lose such customers.

So what is the difference?

An instant answer to the question is the oft-repeated phrase – ‘Islamic products do not offer interest (Riba). The statement is without a doubt true, but this is not the sum total of Islamic finance.

Riba is indeed deemed haram in Islam, for the reason that it is ‘unfairly’ exploitive in nature. It is ‘unfair’ because Riba requires the lender to return the borrowed money, plus an extra amount. This requires the borrower to work harder to return not just the principal, but also the interest or mark-up levied on the amount.

Secondly, interest is set arbitrarily. The concept treats money as a tradable entity which fluctuates volatilely in the markets. There is no set ceiling; meaning that loaning money may become cripplingly expensive for the borrower.

Then how does Islamic finance work?

Islamic financing is asset-backed and believes that only assets with an intrinsic value may be sold for a profit, instead of exchanging money – which is considered to have no intrinsic value – for interest. Each unit of money has the same value as the other of the same denomination, which is simply why there cannot be a profit on its exchange. Hence, Islamic finance lays its foundation on real, non-liquid assets; the exchange and sales of which result in ‘fair’ profits.

The Pakistani financial industry today offers various Islamic products; in wealth management, asset management and banking; spread over short-, medium- and long-term funds. All investments in such schemes are made strictly in Shariah-compliant instruments under the supervision of a Shariah Advisory Board, which comprises of renowned Islamic scholars.

Stakeholders in the industry must now step forth and present a clear picture of Islamic finance: one which presents it as a way of rethinking economics and finance, instead of just as a cosmetic solution tailor-made for religious investors finicky about where their money is going.

THE WRITER IS AN INVESTMENTS EXPERT

Published in The Express Tribune, August 20^th, 2012.

The economics of Ramadan The reduced energy levels - and working hours - of the month of fasting affects the stock markets.

Downtown Cairo is a boisterous place. The ubiquitous honks of the car horns and the ebullience of peoples on the street ensure that any form of silence exists only in the memory. However, for one month a year, every year, the streets go silent and the shops close for as long as the energy sapping sun stings the eyes. This is the holy month of Ramadan.

One of the five pillars of Islam, every Muslim should abstain from drinking, eating, smoking (as well as a few other things) between Fajr prayers in the early morning and Maghreb Prayers in the dusk. The Qur’an prescribes it as a way of learning self-restraint.

The eschewing of water and food, however, means that those observing the fast are also affecting their energy levels. Simply walking down the street, the vitality that would once overwhelm me is conspicuous by its absence. Those that are out languishing under the relentless Cairo sun reply to my salutations with a half-hearted wave where once I would have been invited into conversation.

In an effort to manage this problem, the Egyptian government reduces the work hours of private sector and bank workers. The reduction and/or adjustment of work hours during the month of Ramadan takes place in almost every Muslim-majority country. But whereas Malaysia and Indonesia generally practice a one-hour adjustment, one-hour reduction scheme, Egypt practices a two-hour reduction for private sector workers, a three-hour reduction for banks, as well as a one-hour reduction in their stock exchange trading hours.

This may well ameliorate the situation of fasting with the workers, but it also means that over the course of Ramadan, the private sector loses around 40 hours of operating time, the banks around 60 hours and the Egyptian stock exchange around 20 hours of trading time. 

Strangely though, the effect of losing 20 hours worth of trading time on the Egyptian stock market is minimal, if anything (see graph).  Using data from the benchmark EGX30 index – which looks at the top 30 companies in terms of liquidity and activity - between the years 2000-2006 there is absolutely no correlation between the typical monthly percentage change in stock value and the percentage change in the month of Ramadan, but it does seem to suggest that the reduced trading times has increased the market’s volatility.

The fact that Egypt releases its GDP and growth statistics in quarterly format mean any attempt to scrutinise the Ramadan periods within them is futile. However, the latest data released by the Ministry of Planning and Ministry of Finance can be examined as it covers the period from 1 June to the present, which encapsulates most of this month of Ramadan, plus 19 days of non-fasting.  In that time, the total GDP change has been -4.1%, which correlates to a recent report by the Dinar Standard - a research and advisory firm that focuses on emerging Muslim economies – which gave an estimate of an average loss of 4% to GDPs in Muslim-majority countries.

In that report, it estimated that Egypt made a loss of nearly 8% in its monthly GDP due to it’s reduced Ramadan hours, which would result in a total loss of just over US$1.4bn for last year’s Ramadan period. The reduction of hours may be necessary exchange for worker morale, but for an economy that is already struggling to attain the considerable US$22.5bn needed to finance its deficit for this fiscal year, it’s a hefty trade-off.

http://www.newstatesman.com/blogs/economics/2012/08/economics-ramadan?flv=1

Skill shortage obstructs growth of Islamic finance

Southeast Asian universities are adding Islamic finance courses as Bank Negara Malaysia’s Shariah Advisory Council warns a skill shortage in the industry is hampering growth, Bloomberg reported.

Universitas Muhammadiyah in Malang, Indonesia and Kuala Lumpur-based International Centre for Education in Islamic Finance (INCEIF) said this month they plan to start new programs. Malaysia needs 40,000 more qualified people in the industry by 2020, Dzuljastri Abdul Razzaq, head of the International Islamic University Malaysia’s finance department, said. Indonesia will require 17,000 more over three to five years, according to a central bank survey.

The shortage of skilled professionals is exacerbated by a mismatch between what is taught in courses and the abilities sought by employers, according to Kuala Lumpur-based Aberdeen Islamic Asset Management Sdn.

“Many graduates are knowledgeable in the various terminologies and products but don’t know the basic tenets of fund management and how the Shariah component then fits into the whole picture,” Abdul Jalil Abdul Rasheed, who helps manage $3 billion as chief executive officer at Aberdeen Islamic, said.

Malaysia’s Shariah banking assets rose 24 percent last year, while Indonesia’s have grown by an average of 38 percent over the past five years, central bank data show. This has helped drive a 67 percent jump in global sales of Islamic bonds in 2012 to $29.1 billion. The skill shortage is slowing product development and preventing the industry from expanding at even quicker rates, according to Lee Hishammuddin Allen & Gledhill, a Kuala Lumpur-based law firm that has a Shariah practice.

“The Islamic finance sector is growing faster than the supply of talent,” Mohammad Akram Laldin, who sits on the Malaysian central bank’s Sharia Advisory Council, said in Kuala Lumpur. “The industry has to continue its efforts to bridge the gap.”

Universitas Muhammadiyah plans to start an Islamic economics degree within five years in response to requests from banks, H. Nazaruddin Malik, dean of the business and economics faculty, said. The institution currently runs short courses on Shariah-compliant accounting. 

INCEIF is in talks with colleges to start programs in Oman, Turkey, and Kenya, said chief executive officer Daud Vicary Abdullah.

“The shortage impedes growth because you don’t have the best people making the best decisions,” he said in an August 10 interview in Kuala Lumpur.

In Malaysia, about 56,000 new finance industry jobs, including non-Islamic roles, will become available in the next 10 years, particularly in areas such as wealth management, Shariah advisory and corporate finance, according to the central bank’s Financial Sector Blueprint 2011-2020 released in December.

Indonesia’s Shariah-compliant banking industry currently needs 36,933 professionals, Harisman Sidi, director at the International Centre for Development in Islamic Finance at the Indonesian Banking Development Institute in Jakarta, said, citing data from the country’s monetary authority.

Bank Indonesia is encouraging Shariah-compliant lenders to put more resources into staff training to help meet its target of expanding Sharia-compliant banking assets to 10 per cent of the total by 2020 from about 4 percent, Edy Setiadi, director of Islamic banking, said.

“Because the market share is still small, Islamic banks are still not the top destination for many graduates of the country’s best universities,” he said.

Malaysia, home to the world’s largest sukuk market, has 16 Shariah lenders, according to data from the central bank’s website. That compares with 26 commercial and 15 investment banks which do not comply with religious tenets.

“There isn’t a lack of talent, there’s just a lack of opportunities,” Raj Mohammad, the Singapore-based managing director at consulting company Five Pillars Pte, said. “There aren’t a huge number of Islamic financial institutions that are popping up everywhere.”

Shariah-compliant notes returned 6.6 percent in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets climbed 12.2 percent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.

The average yield on worldwide sukuk was little changed at 3.14 per cent, and has declined 85 basis points this year, according to the HSBC index. The difference between the average and the London interbank offered rate, or Libor, narrowed one basis point, or 0.01 percentage point, to 205 basis points, the gauge showed. – Agencies

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=20120821133632

Islamic finance body plans ethics code

DUBAI – A fledgling industry body of Islamic scholars wants to develop a global code of ethics and a professional development program for scholars, in order to improve standards in the industry, its president said.

The Malaysian-based Association of Shariah Advisers in Islamic Finance (Asas), set up in April last year, plans this year to launch a test for the financial literacy of scholars, and ask its members to sign up to a code of ethics; if they break the code, they may be reprimanded by Asas.

This has fostered confusion when scholars’ rulings contradict each other. And because scholars are paid by the institutions whose products they vet, the industry is open to accusations of conflicts of interest.

The plan takes aim at a weakness in Islamic finance which is slowing the industry’s growth. Boards of scholars at financial institutions rule on whether instruments and activities obey religious principles, but there is no single, commonly recognized set of qualifications for the scholars.
Both initiatives will initially apply only to Malaysia but the group aims eventually to extend it around the world, said Malaysian-born Asas president Aznan Hassan, a scholar who sits on several Shariah boards across the globe.

“We want to have a program that can have an impact on the industry,” Hassan said by telephone from Kuala Lumpur.

Asas, which currently has more than 60 members, will offer guidance on issues such as how to appoint Shariah boards and address potential conflicts of interest, he said.

The financial literacy test will form the basis of an accreditation program that could start as early as the first quarter of next year, aiming to encourage the professional development of scholars through a points-based system.

This would address concerns that some scholars “may be static in terms of their knowledge”, said Hassan. “If we are not careful, someone who claims to be a scholar could give wrong advice.”

Asas members will be able to earn points toward their accreditation by enrolling in training courses offered by regulatory bodies, private providers or Asas itself.

The body plans to build its membership of scholars on a voluntary basis in the first two years, and then propose that membership becomes compulsory for all scholars in Malaysia from 2015 onwards. Although its initial focus will be Malaysia, it aims eventually to have an international footprint that could encompass all Shariah scholars.

“We need to lead by example first,” said Hassan, adding that it would be difficult to persuade other countries to join without proof that the system worked. Asas will offer a venue for discussion and be proactive in shaping the role of scholars in the industry,” he added.

Malaysia’s securities commission is also considering the possibility of developing an accreditation program for Islamic scholars, but this is only at the exploratory stage and could take no less than three years, a source involved in the discussions said.

If Asas’ accreditation scheme spreads globally, it could help to create more uniformity and consistency among Shariah boards’ rulings and in standard-setting for the industry.

Currently, standards set by industry bodies such as the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions are enforced in some countries in full or in part, while others use them as a reference.

“Regulations come in many different ways, some are lenient and some are structured,” said Hassan, who among other posts sits on the Shariah boards of the Malaysian central bank and of Dar Al Istithmar, the firm which advised Goldman Sachs on its controversial plan, which has still not gone ahead, to issue a $2 billion sukuk. – Reuters

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=20120821133630

Islamic finance taps into mobile phone airtime

The use of mobile phone airtime as an underlying asset in structuring financial products is making a comeback especially in the Islamic finance space. Malaysia’s Axiata Group Berhad, one of Asia’s largest telecoms operators, is setting the pace in using mobile phone airtime as one of the underlying assets to back its sukuk issuances. 

The Group launched a $1.5 billion Sukuk Al-Wakalah Issuance Program a few weeks ago, followed by a RM5 billion Sukuk Al-Murabaha offering last week by its mobile phone subsidiary, Celcom Axiata Berhad, which was issued through its unit Celcom Transmission (M) Sdn Bhd. 

But it was the Saudi telecoms operator Etihad Etisalat (Mobily) which was the pioneer of using mobile phone airtime in their financing requirements.

In March 2008, Mobily raised a $2.875 billion syndicated Islamic financing facility, which was based on mobile phone airtime, whereby Mobily was able to sell minutes of airtime to the financiers involved, and then taking on the role of agent to these banks and selling the minutes for a profit. 

The facility, whose proceeds were used to refinance the Saudi telecoms operator’s short-term debt and to fund its operations and infrastructure expansion, was arranged by a consortium of banks which included Samba Financial Group, National Commercial Bank, Saudi French Bank, Calyon Bank, Saudi Hollandi Bank, ABNAMRO and National Bank of Abu Dhabi. 

Similarly, in August 2009, Malaysia’s RHB Islamic Bank, pioneered the first tawarruq (Islamic cash management) product based on the use of mobile phone airtime, which the bank claims was the first commodity murabaha type product based on mobile phone airtime.

Tawarruq is used as a cash management instrument by some Islamic banks which allows customers to raise funds. Normally in a tawarruq transaction, according to RHB Islamic Bank, the purchaser will buy a commodity from the bank on a deferred payment plan and thereafter, sells it to the market to raise instant funds. In the past, commodities such as precious metals and crude palm oil have been used as the intermediary asset for tawarruq. 

Under the airtime-based RHB Islamic Bank tawarruq offering, the minimum financing was RM3,000 and the maximum financing was RM150,000. The bank bought the mobile phone airtime from a broker at cost price and sold it to the customer at the mark up price depending on the rate of the facility at the point of application and the customer then chose the payment period between 2 years up to the maximum of 10 years. RHB Islamic Bank signed an agreement with Sedania Media Group and E-Pay for the introduction of telecommunication airtime in its tawarruq offerings, with Sedania being the ready buyer and E-Pay the ready seller for the commodity.

With Asia and the Middle East seen as two of the largest growth areas for mobile phone ownership, the prospects for using airtime as an asset class for structuring various types of financing structures are both exciting and potentially big. 

In a statement, Jamaludin Ibrahim, Axiata Group President and CEO, emphasized that “both programs are in line with Axiata Group’s on-going group-wide initiative to optimize its balance sheet and improve its financial flexibility, while supporting the government’s vision of developing Malaysia into a major Islamic financial hub and reaffirming Malaysia’s position as a leader in the global Islamic capital market.”

In July, Axiata Group Berhad, through its wholly owned subsidiary, Axiata SPV2 Berhad, launched a $1.5 billion Sukuk Al-Wakalah Issuance Program, which the issuer stresses is the Asia Pacific Region’s first internationally rated multi-currency sukuk program and whose underlying is based, inter alia, on mobile phone airtime. 

Axiata is one of Asia’s largest telecommunications companies with controlling operations in Malaysia, Indonesia, Sri Lanka, Bangladesh, Cambodia and Thailand and minority operations in India and Singapore, and joins a growing number of companies using mobile-phone airtime to back Islamic transactions. In fact, airtime joins other non-tangible asset classes as underlying for Islamic finance transactions including sukuk issuances, which has been introduced into the market over the last few years. These include intellectual property, tariffs due on electricity meters, and receivables due on petrochemical marketing contracts.

This indicates the growing innovation in structuring sukuk and the increasing flexibility by Shariah advisories especially in recognizing the legitimate use of assets, which would have been non-existent and thus inconceivable during the last 1,430 years following the advent of Islam. It also signifies an important Ijtihad (discourse among the Muslim jurists) albeit in the context of modern finance which perhaps has been absent in other areas or sectors of life in Muslim countries. 

Airtime as an asset is set to flourish in debt financing deals, given that Asia is projected to see a massive increase in mobile phone ownership in the world over the next few years. ROA Holdings Inc. in Tokyo, for instance, estimates that Asia will account for a staggering 65 percent of 7 billion mobile phone owners by 2015. 

In the Islamic finance space, its use in tawarruq deals may proliferate in the short-term but given the uneasiness due to Shariah concerns over the use of certain tawarruq structures, its use could be more increasingly used to form a component of the asset pool to back sukuk transactions. 

The $1.5 billion Axiata Sukuk Issuance Programme, which was lead arranged by CIMB Bank (L) Limited, HSBC Amanah Malaysia Berhad and Merrill Lynch (Singapore) Pte. Ltd., and which was approved by the Shariah advisory board of HSBC Amanah, has an innovative structure which provides for the issuance of sukuk under the principle of wakalah (agency arrangement), which allows the use of assets comprising airtime vouchers (representing an entitlement to a specified number of airtime minutes on the mobile telecommunications network of subsidiaries of Axiata for on-net calls), Shariah compliant shares, lease assets and murabaha receivables arising from the sale of commodities as the underlying assets. The three banks also acted as dealers and bookrunners for the transaction. 

According to Jeremy Stoupas, Partner at Allen & Overy, the international law firm which acted for Axiata, “this transaction represents a significant development in the fast evolving market for Shariah compliant products in Asia Pacific. It is particularly pleasing to see this program come to market as it meets the challenge of trying to accommodate Shariah requirements without compromising on the robustness of the structure from an English law perspective.”

Axiata, which is not in urgent need of funds, will not immediately issue a sukuk tranche under the program, which is more a part of a future funding and development strategy. The multi-currency structure is also intended to attract investors from various parts of the world.

Equally importantly, according to a statement from Axiata, the sukuk program, “is in line with Axiata’s commitment to support the government’s ongoing initiatives and efforts in positioning Malaysia as an international Islamic finance center.”

At the same time, in August, Celcom Axiata Bhd successfully priced its RM5 billion sukuk in nominal value, of which RM3 billion attracted orders of RM10 billion via a bookbuilding process from asset management companies, financial institutions, insurance companies and corporates, and the remaining RM2 billion was privately placed with strategic investors comprising 8-year, 9-year and 10-year tranches respectively. 

 

The sukuk, which was lead managed by CIMB, HSBC Amanah Malaysia and Maybank Investment Bank, which also acted as bookrunners, has been assigned a rating of AAAIS with a stable outlook (the highest credit rating available from the Malaysian rating agencies) by the Malaysian Rating Corp. Bhd (MARC), which stressed in a statement that the rating reflected the credit strength of the Axiata Group.

Proceeds from the sukuk, with tenors ranging from 3 to 10 years, will be used to refinance Celcom Transmission’s existing debt of RM4.2 billion and the company’s capital expenditure and working capital requirements.

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=20120822133713

Is Islamic Finance Collapsing in Germany?

The entire paper on Islamic finance is here. There is also an interview (in German).

A new study by the Stresemann Foundation reveals that sharia-compliant finance is gaining virtually no traction in Germany, due in large part to a lack of demand for it among German Turks.

A press release summarizing the foundation’s findings was sent to Gates of Vienna earlier today. Many thanks to JLH for this prompt translation.

Is Islamic Finance Collapsing in Germany?

Low Muslim Income and Lack of Agreement among Sharia Scholars as Intrinsic Barriers to Islamic Financial Products

Berlin/Jena, July 24 2012 — Islamic finance in Germany has, to the greatest possible extent, remained unsuccessful. A working paper from the Stresemann Foundation now shows that internal barriers especially are determinative. In the first place, Muslim immigrants are low-income and demonstrate little investment potential, because of having less formal education and because Muslim women often have no gainful employment. For another thing, the system of sharia scholars leads to problems due to nebulous legal practices.

“The present failure of Islamic financial products in this country cannot be attributed to lack of support by policy and the authorities,” declares Rebecca Schönenbach, author of the working paper and certified Islamic specialist. “In Great Britain and France as well, which have generously adapted their financial regulations to sharia-compliant banking, there is no demand from depositors.”

As is explained in the working paper — referring to scientific studies — it is not just the limited income of the Muslim community that is important. A third of the Turks living here invest in real estate in Turkey, and barely a fourth in real estate here. Not even a fifth admit to having a savings account in Germany. There is practically no investment in other methods of saving, including Turkish, Islamic financial products.

On the part of the vendors, according to Schönenbach, there is the problem that the role of the sharia scholars has not been satisfactorily clarified. She says, “There are hardly any clear guidelines for fatwas; Islamic legal opinions and the various authorities are contradictory. Additionally, there is often a lack of economic knowledge and lack of independence in financial institutions. The scholars as a whole must produce transparency about the values of Islamic finance and sharia, and for the non-Muslim public as well.

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The Stresemann Foundation — A Lobby for Freedom

Under the banner of the great statesman and Nobel Peace Prize winner Gustav Stresemann, the Stresemann Foundation champions the preservation of civic, liberal values. In this role, it counsels and supports those active in political affairs.

http://gatesofvienna.blogspot.in/2012/07/is-islamic-finance-collapsing-in-germany.html

Islamic Finance Leads the Way

The upward trend of socially responsible investment mirrors a growing interest in Islamic finance

Ironically, the global financial crisis has triggered conservative investing through non-conventional means: non-Muslims are increasingly choosing to invest through Islamic institutions’ portfolios. The irony is particularly striking in the US, since Islamic financing often times carries the misnomer of “terrorist-financing”. However, for those looking to pursue more ethical investments, and with the rise of socially responsible investment culture, Islamic financial institutions create a new investing culture—specifically through Islamically-managed hedge-funds.

Before one identifies further trends that reflect the “mainstreaming” of Islamic investments, two questions frame the modern appeal of Islamic finance: 1) what are the religious prescriptions for this type of investment; and, 2) why would non-Muslims choose a mutual fund that follows Islamic Law while many non-Muslims worry that Islamic Law will trickle into their secular nations’ legislative process? The latter is a glaring paradox. According to Reuters Business Times Malaysia, the mixture of Islamic financial instruments (investments that adhere to religious principles) considers risk as well as appeals to those wishing for more transparency on the types of industries that comprise the investment portfolios. Furthermore, the upward trend of socially responsible investment (SRI) is due to the younger, progressive mentality of ‘social responsibility,’ as illustrated by a financial magazine’s listing of options that incorporated human rights and the environment factors into portfolios.

Muslims outside of Muslim-majority countries have augmented the Islamic finance industry and modernized outlets with respect to the SRI movement

The United Arab Emirates established the first Islamic banking institution. Outside of the Gulf Cooperation Council, four Islamic banks operate in Lebanon, while Tunisia is considering expanding its financial industry. Today there are over 300 institutions spread across six continents. For the last decade, Muslim-majority, Middle East, and North African (MENA) countries have used or promoted Islamic finance for three reasons. First, Islamic finance prohibits any financial returns from usury, or excessive interest rates, known asRiba (usury). Instead, a financial return is derived on a participatory, profit and loss sharing (PLS) basis called mudaraba andmusharaka contracting. This practice emanates from the principle that one should not sell assets before they exist, as described by the Ethica Institute of Islamic Finance. The subcategory of mutual funds follows PLS criteria as well as certain others. Second, Islamic finance guidelines exclude consumer goods and services in the following sectors: alcohol, gambling, and certain entertainment and media sectors (for example, pornography). Third, reporting requirements emphasize the transparency and accountability measures that many industrialized countries refer to as corporate governance’s best practices.

Trend #1: Culture of Socially Responsible Investment

The culture of socially responsible investment parallels the fine-tuning of Islamic mutual funds. Similarly, it is only fair to note how the parallel trend of socially responsible investing—which has catalyzed non-Muslim investors’ attraction to Islamic investments—has matured in many regions. Looking back at US investment experiences, SRI is not an entirely new concept; it has simply been reinvigorated. As one working paper stated, it was in “1971 that the first ethical mutual fund, the Pax World Fund, was publicly available to individual investors” to avoid investing in the gambling/casino sector. Both socially conscious and Muslim investors share this concern. As such, the process requires religious scholars to collaborate with fund managers and financial regulators to reconcile the investment process.

Like other social justice causes, SRI focuses on the externalities (e.g. pollution) that many economists describe as the unintended consequences of fully competitive markets and production. In turn, government might intervene with some public finance instruments and tax businesses to address the unintended consequences. However, government regulation creates further problems with bureaucracy and the expectation that oversight checks private forces. For example, because certain sectors, like the alcohol and tobacco industry, are legal, government will impose higher sales tax on these items to curtail consumption and use the tax revenue towards public infrastructure. But socially conscious citizens might not be satisfied with the outcomes and still feel that society must hold certain sectors accountable beyond taxation.

Given these social, economic, and environmental concerns, an SRI fund would appeal to Muslims seeking this type of ethical practice as well. More recently, Muslims outside of Muslim-majority countries have augmented the Islamic finance industry and modernized outlets with respect to the SRI movement. As such, one may argue that a new subcategory of Islamic finance has emerged. In the US, a group of Muslim Americans looking to invest according to Islamic practices approached Nicholas Kaiser, the founder of Saturna Capital, to develop a mutual fund. According to Kaiser, “Muslims in America had a desire to own stocks and they knew there were certain restrictions or guidelines that they should follow. By hiring a mutual fund management company to create a fund to follow those restrictions, they knew it would meet their religious needs to satisfy their goal of buying equities.” Thus in 1986, the Amana Mutual Fund was created, followed by the Amana Growth Fund in 1994. Both are now listed on the Dow Jones Index as AMANX and AMAGX.

Trend #2: Establishing Islamic Markets Indices

In 2008, Dow Jones noted the above and opened up its Middle East office to connect directly with the Islamic finance industry hub in Dubai, where the International Islamic Finance Forum, comprised of policymakers and scholars, is headquartered. They anticipated growing interest in Islamic finance and created the Dow Jones Islamic Market in 1999, thereby beating out the FTSE and Standard & Poor’s (S&P) version of cataloguing Islamic markets by almost a decade. (S&P established one in 2007, followed by FTSE in 2008.)

A debate persists as to how simple or complicated it is for investment managers to implement Islamic finance conditions. For example, critics of Islamic finance argue that complex and sophisticated transactions at an institutional level are still a challenge to Muslim financial scholars. Back in 2009, the Bahrain-based Islamic Banking regulatory body, the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI) asserted that 85 percent of Islamic bonds (sukuk) were in fact un-Islamic. Nonetheless, those opting for Islamic investment funds share much in common with others pursuing faith-based investment funds, like the underlying belief in holding both oneself and society accountable for community development. This explains why the larger trend of socially responsible investing will likely grow in popularity as middle-class families grapple with their mistrust of the latest banking crises.

Specifically, the notion of creating wealth for society—and not just the individual—operates as the modern equivalent of SRI’s goals for community investment. As a result, the philosophy of Islamic finance overlaps with socially responsible investment. The only difference is that Islamic finance proposes an entire financial system that interrelates with way of life and specifies rules and principles.

Trend #3: Non-Muslim Majority Countries Take Notice

Other regions with non-Muslim majority populations have taken notice of Islamic finance’s market potential. As a result of a 2004 decision, both Deutsche Bank and Citibank are reaping the benefits of their first mover advantage to open Islamic banking windows, since many European and American banks are holding back from lending. Deutsche Bank projects that the Islamic finance may double in assets of up to 1.8 trillion dollars by 2016. Earlier this year, Islamic Finance News awarded Deutsche Bank “Best Islamic Finance Trustee/Custodian”.

In 2009, other non-Muslim majority countries, like Japan, noticed this trend and started issuing Islamic bonds (sukuk). In addition, mainstream publications like The Atlantic illustrate the business world’s need to engage more directly with Islamic finance practices by offering courses: “Hong Kong University has been one of many institutions for higher learning in the region to establish a degree program in Islamic finance,” writes Massoud Hayoun.

Trend #4: Islamic Banks May Be the Other Side of the SRI Coin

Islamic Banks have grown beyond the GCC and spread to Turkey. Islamic banking enterprises successfully have engaged Turkey’s 70 million—and growing—population and developed American and Middle Eastern ties as Turkey secures its place as a political and regional leader. Banks like Turkiye Finans have developed investment portfolios that address both the Islamic elements as well as the growing need to become more ‘socially responsible’. In 2011, Turkey launched the ISE Participation Index, KATLM. The index is part of an initiative to promote ethical funds and SRIs. (See “Islamic Finance in Turkey–Looking Ahead With Confidence”, 2007, by Peter Wouters.)

About 10 years ago, Turkey experienced frustration over not getting into the European Union. Several reasons were cited, arising both from the Copenhagen Criteria and cultural bias. Ironically, the decision to exclude Turkey has produced hidden blessings: Turkey avoided the Euro financial crisis, and Islamic banking institutions have increased economic and social linkages within a secular country. Meanwhile, Turkey has become as a model country within the MENA region as it increases its investment in Iraq.

Coincidentally, the socially responsible investment trend is growing within cities like Paris and San Francisco, just like it is growing in Hong Kong and Ankara. In the US alone, Sustainable and Responsible Investing is a broad-based approach to investing that now encompasses an estimated $3.07 trillion out of $25.2 trillion in the US investment marketplace today, according to The Forum for Sustainable and Responsible Investing, which parallels the subcategory of faith based funding. Moreover, some industry analysts posit that the larger SRI phenomenon produces gains beyond its ethical benefits. SRI and its subcategories of faith based funds are seen as a market for long-term sustainability because their criteria look at economics, environmental and social issues. SRI is viewed by many industry analysts as the key to sustainability, which is attractive to investors. As such social issues encompass human capital, which function as good indicators of how the company is managing itself: ‘corporate governance’.

Market Potential

The wider market for SRI Funds exist beyond progressive, socially conscious investors—or what investment managers describe as a “niche identity” market representing 2 trillion dollars. Building on this SRI premise, the market potential for Islamic Fund clients is growing. Clients looking towards SRI have money to invest as well as a vested interest. For example, an increasing number of Americans wish to exercise more oversight with their retirement plans, in part because of the Enron and Maddoff scandals. Instead of investing in the typical 401 (k) plans, Americans may invest in 403 (b) plans, which allow more hands on decision-making. As a result, the additional oversight in a 403 (b) plan provides an opportunity to select industries that focus on social and environmental factors. Consequently, there is a large market potential for Islamically managed hedge-funds, given that the Arab Spring countries are considering many types of banking reforms, as stipulated by the Ernst & Young report.

In addition, many non-Muslims are looking for alternative investment options. In the UK and Malaysia, non-Muslims have opted to invest with Islamic finance institutions as a means to observe ethical investment choices. Almost a quarter of Islamic accounts in Malaysia are owned by non-Muslims, according to a BBC report.

Wealthy Muslims in the UK and the US participate in both the Western economy and the Islamic finance sector. Demographicdata by the Pew Forum on Religion & Public Life’s research support this market potential claim as well. Muslims comprise 23.4 percent of the global population, and is expected to increase by 35 percent over the next two decades.

Heightened Awareness

The global financial crises have heightened awareness and increased the investors’ interests in alternative investment strategies. Recognizing the common ground between Islamic finance principles and the modern investor’s vision for more transparency and investing sectors that address social concerns only promotes the most competitive investment strategies. A 2009 Working Paper by Novethic argued that there is no natural link between SRI and Islamic Finance because SRI do “not employ the same expertise or target the same clientele.” Nonetheless, the activity outside of non-Muslim majority countries presents a different story with respect to the global financial crisis and its effects. Overall, as more investors observe the parallel trends, alternatives have widened the scope for both social and financial accountability as well as deepened the hope to avoid a repeat of the unethical financial practices.

http://www.majalla.com/eng/2012/08/article55233666

Why Arab Youth Can’t Find Jobs? An Islamic Perspective

Arab youth unemployment is a complex and multidimensional problem. It requires modern and new innovative strategies to find practicable solutions to this social ill. Saad Al-Harran highlights the current social and political upheavals in the Arab world and examines the importance of investing in new business ideas and the significant of external mentoring from the talented Arab entrepreneurs in the West.

Introduction (1) The Current Trends in the rab World Youths are the engine of economic development. They are the future leaders of the Arab world, which been confronted with many challenges mainly youth unemployment, poverty and illiteracy. But the harsh realities are different; youths today have completely lost faith in their governments who run their states as a family business surrounded by corrupted business elites who suddenly become millionaires building their own giant corporations. It is also true that these business families are now control the economy and run the show by investing in the stock market (paper economy), tourism and servicing sectors for profit maximization purposes. Regrettably, these corrupted governments are self-centered carry out policies of the IMF and World Bank that led them to sell many public assets and left millions of people without jobs. The main aim is to privatize the economy and sell these assets cheaply to a few wealthy business families and foreign investors. Their ultimate objective is to control fully the economy that has become a service sector that cannot generate enough employment to fulfill the demands of youth to have decent jobs and to rob the wealth of the nation by building their own business empire at the expense of the masses who suffers immensely. This critical situation has made youth and unemployed graduates depressed because they are desperate to find jobs to support their families and children but their demands have not fulfilled because the state role has ended most of the economies are run by the global capital through multinational companies. Thanks to the corporations who rules the Arab world with the help of IMF and the World Bank policies. This depressing situation has led youth to act against the corrupted regimes (thanks to twitters and face book who made communication between youth easier) that has betrayed them for the last two, three or even four decades and steal the wealth of the nation and marginalize the society and shattered the lives of millions of people. Good examples are Egypt, Tunisia and Libya economies for the former more than five million Egyptians are sleeping in the graveyards because they have house to stay. The Spark Started From Tunisia Undoubtedly, the death of Mohammad Bouazizi, a 26 year old that set himself on fire on 17th December 2010 in the city of SidiBouzid in Central Tunisian marks new era of social and political upheaval in the Arab World. It places the socio-economic agenda that includes the dignity of human beings to have decent jobs in the headline Arab news. Arab league President Amro Mussa warned Arab leaders during their Arab Summit in Sharm El-Sheikh on Wednesday 19th January 2011. He talks about the grievances of ordinary Tunisians that sparked a popular uprising were linked to “unprecedented anger” in the region (www.middle-east-online.com). While the Amir of Kuwait who participated in the summit has set up a two billion dollar fund to finance small and medium sized businesses in 2009, keen to see this fund effectively utilized. However, sudden developments indicated that Arab leaders are worried and concerns about public anger between youth and university graduates due to unemployment problems especially after Tunisian President Zine El-Abidine Ben Ali and his wife’s family were forced to step down and fled the country after Twenty-four years in power. The impact Undoubtedly, the youth social upheavals in Tunisia has succeeded to break the status of fears in the minds of many Arabs that have led to have the second youth social upheavals took place now in Egypt the Centre heart of Arab World. Youth were the leaders in the Egyptian social movement that started from 25th January 2011 and succeeded on February 11th after more than three hundred citizens were killed and more than six thousands were wounded. The event in Egypt marks new area in the whole Middle East that is the return of the head to the main body of the Arab world. It also marked the end of unpopular regime in most populous nation in the Arab world. Similar trends are now taken place in Libya where the Colonel Gaddafi, the longest serving leader in both Africa and the Arab world, after the public unrest that took place on 17th February, has managed to hire missionaries from Niger, Mali and Nigeria to kill his own people in a very savage ways without any respect or mercy to women, children and even mosques have been destroyed. The International Criminal Court (ICC) is warning Gaddafi that he held criminally responsible for his regime reactions to protect that have been taken place. (2) The Main Causes of Youth Unemployment in the Arab World It can be divided into two parts mainly internal and external factors. For the internal factors these are: (a) Outdated Education System: Although Arab states have spent millions of dollars modernizing their education system but these expenditures were not well spent. Sadly, it is wrongly channeled mostly towards building construction of many schools, colleges and universities without proper investment in human capital. Arabs spent a higher percentage of GDP on education than any other developing region but the quality of education has deteriorated pitifully, and there is a severe mismatch among the labour market and the education system. It is obvious that Arab educational system are still not as good and rewarding as they should be with all the financial, human, cultural and other resources that this region has (Elsayed, A). One of the gravest results of their poor education is that the Arabs, who once led the world in science, are dropping ever further behind in scientific research and in information technology. Investment in research and development are less than one-seventh of the world average. Only 0.6% of the population uses the Internet, and 1.2% has personal computers. Ironically, the methods of teaching are also of concerns by many educated Arab professionals who mostly live in the West. Rote learning that does not allow students to think critically and analytically; and to appreciate the importance of learning as an ongoing journey that passes through life discoveries by seeking knowledge and information. This type of learning paralyzes the minds of many students today and made them think that attending lectures is boring place because many lecturers don’t allow them to think creatively. Regrettably, it is also true that through rote learning, students have been taught to memorize various topics in the recommended textbooks to enable him or her to pass the examination successfully without understanding fully the meanings. Interestingly, Robert kiyosaki (2003) concluded that modern education system of this kind prepares youth to become an employee not to an employer. This has led students to get bored in the class room seldom exposed to outside learning environment to appreciate the importance of understanding al-sooq al-Islami (Islamic market) on the contrary to what Islam want us to be. Surah Al-Furqan (7) says, “What sort of apostle is this, who eats food, and walks through the markets? Why has not an angel been sent down to him to give admonition with him”. According to Surah Al-Furqan (20), “And the apostles whom we sent before thee were all (men) who ate food and walked through the streets: we have made some of you as a trial for others: Will ye have the patient”. These two verses show clearly the importance of the Islamic market and why it is vital for the Muslim world to start thinking again to have the paradigm shift in the way we teach marketing to our students in the universities. Students feel bored by learning too many western theories most of which are not applicable in Muslim environment. For instance in economic text book students have been taught that nature resources are limited on the contrary what Allah almighty has promised humanity. The Holy Quran has clearly stated that natural resources are unlimited as long people believe in Allah almighty and do righteous deeds to serve wider community. If they achieve that Allah shower them with endless natural resources. (b) Studying for Education Purposes (status and wealth) Not to Seek Knowledge Most of the students today are education seekers not knowledge seekers. Sadly their knowledge about the socio-political situation is limited to the textbook and they are preoccupied with twitters. On the contrary of Muslim thinkers such as Ibn Khaldun and His famous book (Muqaddimah) and Ibn Sina both who were not having any education qualifications rather they were knowledge seekers and intellectual thinkers. Ibn Khaldun had wide knowledge not only in astronomy but also he was well respected economist and mathematician. Ibn Sina who was physician and his philosophy is his concept of reality and reasoning. Reason, in his scheme, can allow progress through various levels of understanding and can finally lead to God, the ultimate truth. He stresses the importance of gaining knowledge, and develops a theory of knowledge based on four faculties: sense perception, retention, imagination and estimation. Imagination has the principle role in intellection, as it can compare and construct images which give it access to universals. Again the ultimate object of knowledge is God, the pure intellect. Sadly, the current education system in the Arab world makes students to obtain educational qualifications that do not teach them how to create their own jobs to be job creators but instead to be job seekers. Therefore, most of the Arab states were puzzled because large number of students graduates from universities and cannot find jobs and they are keen to get into government jobs. (c) More Emphasis on Western Theories Rather Than Application Student today spent at least eight hours in the class room environment where they have taught by their respective lecturer’s western theories most of which often is not applicable in local Muslim cultures and values. That led them to be frustrated and disappointed why these theories have been taught in the first place. (d) Lack of Freedom According to Dr. Yousef Al-Qaradawi ( well know Muslim scholar) in his programe Al-Shariah and life in Al-Jazeera channel emphasizing that freedom is the main condition to achieve innovation and increase productivity and his views is affirmative because without freedom one cannot express his or her opinion freely (www.forums.islamicawakening.com). That has led all these authoritarians’ regimes to waste millions of dollars in useless projects without any tangible results to wider community. At the same time, Arab intellectuals are not allowed to question what is wrong in education system and why government spends millions of dollars and the outcome massive youth unemployment. The main cause is lack of freedom and accountability. For the external factors: (1) Global Capital Since most of the Arab states are undemocratic and authoritarian regimes, regrettably most of them they calibrated with those they provide global capital for their own interest rather than the public interest. That led the government to decide what is good for their own citizens without any public debate because opposition parties are not allowed to questioning them. These calibrations take the form of accepting the IMF economic medicine such as structural adjustment program, devaluation of the local currency, trade liberation and privatization of public assets and good example is Egypt and Tunis. These programs deny individual developing countries the possibility of building a national economy (Chossudovsky). (2) The Importance of Modern Skills Before modernization the Arab education system need analysis must be conducted of the youth in the Arab world. Egypt. the past three decades, youth were marginalized and they have never been consulted that has led them to be frustrated. For Egypt and after 25th January 2011, fulfillment of youth needs is vital because they are the main engine of economic development in the country. Therefore, the government needs to hire experience researchers so they can make a decision on the research method to be used. These research methods are interviews, focus groups, observation, and questionnaires to be distributed and analysis. Since the new Middle East in the stage of new formations hopes are on the horizon to millions of people who are facing many challenges. It is also true that new paradigm shift is already taken place especially in the most populous nation that is Egypt. Indeed, the main challenges facing the new government in Egypt and Tunisia creating jobs to their youth and making the economy productive. To enable the government to achieve that and to reduce the problem of unemployment between youth it requires her to equip them with modern skills mainly in rural farming and trades. Undoubtedly, agriculture development must be concerned with the rate of increase in food production and the means by which product is increased. Unless a country’s pattern of agriculture development ease the absorption of a large segment of the rural labour force in productive employment, even a large increase in food output will leave many household with inadequate access to food supplies (Meier, G & Rauch, James). Therefore, time has come to induced technical innovation and institutional change to enable farmers to increase agriculture productivity by involving youth in the farming methods. a) Drip irrigation It is considered to be one of the most water efficient irrigation methods. It involves dripping water slowly and gradually into the soil from a network of small plastic pipes which are fitted with drip emitters. Water is delivered directly to plant roots so that less water is wasted and plants receive just the adequate supply of water they need. In Syria for instance, local authority in Salamieh province has designed drip irrigation systems for farmers - over 150 since 2003 with the help of Aga Khan Foundation through the Rural Support Programme. The improved irrigation system their draws water from the well and sends it directly to the plants, distributing it so that there is reduced waste. In addition, several other improvements are made using, for example, a soluble fertiliser injection system that, while requiring fertiliser that is more costly than granular fertiliser, results in greater uptake - more than a twofold increase - by the plant. Other techniques include covering the seed rows with plastic strips that not only reduces evaporation but also bolsters were control, preventing the loss of valuable water and fertiliser to the weeds. For farmers, these new systems result not only in greater production, and thus increased incomes, but also have significant added benefits such as reduced labour, reduced costs for fuel (to pump water), and the elimination of the need to build costly holding tanks. When installing drip irrigation systems for summer crops such as watermelon, eggplant, cucumber, tomatoes and squash, among others, farmers can often recoup the cost of the improved irrigation network in one harvest cycle. Despite these apparent benefits, many farmers still have not adopted drip irrigation systems, often due to the cost or lack of technical expertise, or a lack of trust in the new technology. Here we believe Arab youth need to be involved after learning how drip irrigation works in order to educate farmers about the importance of this modern technology to save water (Aga Khan Development Network). b) Hydroponics It is a growing of plant without the use of soil. It has started to gain momentum in many parts of the world. One of the biggest benefits of hydroponic garden is that you can grow a wide variety of plants in a small area. Water and nutrients are provided to the roots act all times, so that they don’t have to spread out in order to find what the plant needs to survive. Since youth like new business ventures they can benefit from hydroponic systems because there is no need for huge fields. More food can be grown with less fuel cost. Another benefit is that hydroponically grown plants tend to be healthier and mature faster for earlier harvest. c) Electro technology In the area of trade there are great demands for electro technology as life without electricity is hard to image. The Unitec Institute of Technology in Auckland, New Zealand www.unitec.ac.nzhas an interesting applied program that is of great benefit to Arab youth today. Technology is everywhere in our lives in appliances, telecommunications, security systems, fiber optics and smart buildings and applied skills in electrical, electronics and audio-visual engineers and technicians are in demand. Through this program youth can design circuits, install alarms, telecommunications, work on the electrical control of industrial machinery and design household appliance? d) Plumbing Similarly, plumbing is of necessity in the modern life because youth will actually work on making showers, sinks, hot water cylinders and washing machines under the watchful eyes of their lecturers. Here again at Unitec’s Department of Plumbing and Gasfitting is doing great job of equipping youth with applied skills even they went further by providing online learning program help which are of benefit. (3) Why Islamic Microfinance Enterprise is vital now? To enable youth to start their businesses seed capital is vital base on Islamic microfinance principles. Generally speaking, microfinance is a financing tool that provides very small loans to the working poor who are traditionally considered non-bankable, mainly because they lack the guarantees that can protect a financial institution against a loss. Islamic microfinance provides an innovative interest-free alternative to conventional microfinance. Based on the profit sharing principles of equity based finance, Islamic microfinance offers greater resilience than conventional microfinance. If a business fails, nothing is paid; if a business succeeds, profits are shared. Risks and rewards are always proportionate to equity shares. While any return on capital in the form of interest is completely prohibited in Islam, there is no objection to getting a return on capital if the provider of capital enters into a partnership with a worker or entrepreneur and is prepared to share in the risks of the business. Though still a long way from the financial mainstream, many governments now see microfinance as an effective way to build up local enterprise and reduce unemployment. In light of the above, microfinance is seen as a powerful tool for reaching out to the youth unemployed, raising living standards, creating jobs, boosting demand for other goods and services, contributing to economic growth and alleviating poverty. The main purpose of this noble task is to enable youth to succeed and to be financially independent to live according to what Allah wants us to be (as human beings) through decent life that is called (Hayat Taeebah) through which there is no fear from tomorrow. This endeavor if it is well implemented and managed by an efficient and experience professionals it will undoubtedly lead to make major changes about the way we think about them. (3) Time for New Educational Curriculum The tertiary education system in the Arab world has been structured where students spend four consecutive years in the university. We believe it is too long period for students to learn all the theories without any practical applications. The new educational curriculum I intend to redesign is focus on the following: (1) Two years are spent where students learn theoretical courses (such as marketing management and Islamic finance subjects as an example) (2) One year is spent where students gain practical experience. (3) One year is spent back to school where students do case study, workshop and certification. Figure (1) below demonstrates that students, being the main assets in society who make changes for betterment, should have exposure rather than be alienated from it. Therefore, they should be exposed to real life experience first by spending two years in the university learning the theoretical foundations of some important subjects such as marketing, management and Islamic finance courses. Upon completing theoretical courses, students are given test and those who pass the exams (70%) will be eligible to do practical experience with potential entrepreneurs. Other criteria of selection should also be based on business ideas, innovation and creativity of the student. The relevant professor who handles the practical experience program should have an open dialogue with selected entrepreneurs especially those who wish to improve their firms by being more competitive in the market. The open-minded entrepreneurs are more likely to accept the input of others, even if those “others” happen to be students who will be their future partners in the business once they have completed their studies at university. An agreement should be reached between the relevant professor and the entrepreneurs for 12 months’ practical training of the students, with their duties and rights clearly stated in an agreement which will be signed by their professor and the respective managing director of the small and medium industry entrepreneurs (SMIEs) firm. Such an agreement or a memorandum of understanding (MOU) is indeed vital to protect the rights of students now and in the future when at a later stage they become partners in those firms. The MOU should clearly stipulate the following terms of reference between the two parties (the students and the SMIE firms): (1) The students should spend 12 months in practical training with reputable SMIE firms. (2) The students have to be closely monitored by the two parties (the respective new employers and their professors as well) about the conduct of their work during the practical training. (3) Confidential reports must be submitted every quarterly by the managing directors to the professors about the performance of the students. (4) The MOU should clearly state that if a student’s performance during the 12 months is outstanding, he would be considered for partnership in that firm once he complete his studies successfully (Al-Harran). Undoubtedly, once a student realizes that he may become a partner at the firm that he is currently helping out, he will commit himself to the firm’s success, thereby giving the firm greater confidence in its newly acquired staff at a later stage. The students are the new blood and should be considered as assets in the organizational set-up both at present and in the future. They will make sure that they give the right advice to their counterparts. The managing directors of the SMIE firms should take their newly acquired partners’ comments and suggestions seriously. Profit motivation is a factor that should ensure a commitment to hard work. Once the students have completed their practical training and gained real life experiences, they have become assets not only to the SMIES but also the academic institutions. For the final year or fourth year of study at which point students should be given the opportunities and responsibilities to make some presentations about their 12 month practical experiences. Their respective professors should give them the responsibility to conduct case studies, practical workshops and seminars under his supervision. Indeed, responsibility of this magnitude is something new for students and awe-inspiring, so they need encouragement to help them embrace it. This means that their respective professors would be indirectly molding them as future corporate leaders who will the Arab world. (5) Talented Youth and Need for Investment in New Ideas Undoubtedly, the talented youth are gifted from God to our Ummah that needs to nurture, taken care of and support to excel in order to build vibrant economy base on production line rather than servicing sector. They also need educational programs tailored to the specific abilities, interests and motivations. They believe in putting their project ideas into operation as an active learning process to them and others. The talented youth are full of energy; dynamics and action that need to be effectively utilized in order to see their dreams become true through project implementation and wealth creations. It is here where the financial support is needed from Islamic finance and Arab investors to support youth for such new initiatives. The suitable environment is vital for the success of these projects and we believe the State of Qatar (which is currently experiencing rapid economic growth which is keen to assist Egypt in its democratization process especially after 25th January) could be the testing ground for such business endeavors because the country is open and welcome any new ideas and initiatives. The new Egypt is urgently need support especially from those talented Egyptians youth who lives for many years in the USA and western Europe who excel in science and technology and started to come back to build their country. Professor Ahmed Zewail, Nobel Laureate is good example who he was named in 2009 an envoy in the new U.S Science Envoy program, created to foster science and technology collaboration between the United States and nations throughout the Middle East, North African and South East Asia among other Arabs who are keen to assist Egyptian youth to prosper as an external mentoring. (5a) The Importance of External Mentoring Arab entrepreneurs in the USA have made a measurable presence and have had an impact in the rise and development of Silicon Valley region. According to Dr. Mohammed Abdul Aziz who is medical doctor (who lives in USA) and came back to Egypt after 15th January 2011 social upheavals there are 1.5 million Egyptians are keen to help to their own country to prosper (From Cairo Program). They need to be effectively utilized as an external mentoring to Egyptian gifted youth to give them proper guidance’s and supervision. Undoubtedly, Arab entrepreneurs such as Amr Mohsen (Founder, Chairman & CEO, Aptix Corp), Omar Ahmad, President & CEO Silcon Expert Technologies), Ray Milhem (Senior Director& Product Manager, Extreme Networks), Joe Louis, President, Louis Engineering Corp, Ali Moussa (President & CEO, Atavion Networks Inc), Ali Ataha President (ARA Engineering Group) and Ahmed Moeim, Founder of eSynapse Corp will not forgets their roots and cultures and will be keen to share their success stories in Silicon Valley through knowledge and experiences with gifted Arab youth. Indeed, the role model of those Arab successful business entrepreneurs in the global market is inspirational to youth who can render their professional services through sponsorship or assist in set up centre for Arab youth entrepreneurs in Egypt. Figure (2) demonstrates the importance of strategic alliances between three parties, gifted youth, Islamic finance and external mentoring by Arab-American entrepreneurs. The Arab world needs new business leaders who are visionary and goal oriented to create wealth and share it responsibly in the community. Conclusion The social upheavals in Tunisia and Egypt marks new area in the Middle East where Arab youth are the driving forces behind their successes. The time has come for us as academicians and practitioners to support these new democracies in these two important economies to be sustainable think tank groups need to be formed whether in agricultural farming, industry or food security for the Arab world. It is also true that recent event in these two countries shows that we are one Ummah of Islam and time has come to be united sharing one bond and one destiny and our problems should be resolved from within and not from outside as Allah almighty has given natural and human resources that need to be effectively used for the benefit of mankind. The first effort should be to equip youths with modern applied skills to enable them to be problem solvers and successful entrepreneurs. If youth are given the financial incentive, motivation, proper vocational training and monitoring and follow up, they can play an important role in modernizing their economies and be the future leaders creating wealth and share it responsibly. References Aga Khan Foundation, www.akdn.org/syria. Al-Harran, S. (1999). New strategic alliances between Islamic financial institutions, International University Students and Entrepreneurs to implement Musharakah Financing to meet the challenges of the 21st century, Journal of Arab Law Quarterly, Volume 14, (3), pp-268-281 Al-Qaradawi, Y. (2011). Freedom takes priority over Islamic law.www.forums.islamicawakening.com, 15th February. Elsayed, A: “Education in the Arab World: Problems and ways of Improvement:www.arabeducate.com Chossudovsky, M, (2005) The Globalization of Poverty and the new world order, Global Research, pp. 157-158. Kiyosaki, R. (2003)The Business School for people who like helping people. Meier, Gerald M. and James E. Rauch, (2005), edited. Leading Issues in Economic Development, 8th ed., New York: Oxford University Press. The Unitec Institute of Technology in Auckland, www.unitec.ac.nz, New Zealand. www.middle-east-online.com/english/?id=43740. “Mussa warns Arabs of “unprecedented anger”. Dr. Saad Al-Harran is an International Business Consultant in Islamic Microfinance Enterprise and Youth Unemployment Reduction , Palmerston North, New Zealand. Email: nasriah2011@yahoo.com http://www.middle-east-online.com/english/?id=53867