An aspect in the contemporary global Islamic finance that is fundamental is the “principled centred” nature of Leadership in Islam, that involves "trust" (amanah), and with that comes "responsibility" (taklif) and "accountability" (mas'-u-li-yah 1 ). My remarks today will discuss the positive elements that Islamic finance brings to the global financial system, its prospects for enhancing international integration and the potential to strengthen the socio economic aspects of Islamic finance. Optimizing benefits of Islamic finance In evolving the international dimension of Islamic finance an important aspect is the optimization of the oasis of benefits and opportunities Islamic finance has the potential to provide. Islamic finance implicitly embraces strong core values and universally beneficial characters. The fundamental requirement of Islamic finance is that it is confines its activities to that which is supported by an underlying economic transaction thereby avoiding emphasis on speculative purposes. The Islamic principles require that the financial transaction be accompanied by genuine trade and business related transactions. This provides for a high level of disclosure and transparency. This thus prohibits the commoditisation of risks, which effectively leads to its proliferation through multiple layers of leveraging and disproportionate distribution. It reduces the potential for information gaps and for mispricing of risks and thus avoids the elements that could contribute to uncertainty and disruptive market conditions. The Islamic financial system derives its strength and stability from its faculty to uphold Shariah principles.
One could also conceive, in principle, of a housing market that involved much less of it. Suppose that, instead of putting deposits in mortgage-issuing banks, we all had equity investments in companies that owned residential housing – and that, instead of owning the houses ourselves, we were simply tenants of these corporate landlords. That would be a “model” with no mortgage debt at all. But it’s not immediately clear it would make net wealth any higher, housing any cheaper or, for that matter, the macro-economy more stable.8 Returning to the real world, regulators would rightly be concerned if mortgage debt started growing rapidly again, especially if it was accompanied by other signs of loosening credit supply and greater risk-taking. It was in response to early signs of this sort that the FPC decided in 2014 to cap the share of new mortgages banks were allowed to issue at high multiples of a borrower’s income. However, the fact that the level of UK mortgage gearing is higher than it was a generation ago, or that it’s lower than in the Netherlands, is of less significance. And the aim of the 2014 measures was not to reduce 8 In fact we know that under certain conditions, originally set out by Modigliani and Miller (1958), it would make no difference to anything – this is just an extension of their famous result concerning corporate finance (which I also mention below).