Western bankers and policymakers should learn from Islamic banking principles, argued the president of the Islamic Development Bank in a speech in Low Library on Monday.
Dr. Ahmad Mohamed Ali Al-Madani was introduced by Jeffrey Sachs, director of the Earth Institute and the Quetelet Professor of Sustainable Development at the School of International and Public Affairs. Sachs drew attention to ties between the Earth Institute and the Islamic Development Bank, saying that he has seen the Bank do excellent development work throughout the Islamic world.
In his World Leaders Forum speech, Al-Madani drew on this development comparison, highlighting the strengths of Islamic banking when compared to the entirety of today’s global financial system.
“This crisis has showed how fragile our financial system has become with unprecedented growth of debt,” he said. “This makes it incumbent upon all of us to look for a new architecture that will minimize the severity and frequency of such crises in the future.”
He blamed the current financial crisis on inadequate discipline and risk sharing, calling the Islamic system better at managing those risks.
“The principles of Islamic finance can minimize the severity and frequency of financial crises by introducing greater discipline into the financial system and requiring the creditors to bear and share in the risk,” Al-Madani said.
Sachs also praised President Al-Madani for “guiding the development of one of the most important multilateral development banks in the world.”
“I say with mild envy, but mostly admiration, that the Bank is a triple-A rated organization, something we can no longer say about the United States Treasury,” Sachs said.
However, President Al-Madani made it clear that he doesn’t see the principles of Islamic finance as specific to the Muslim faith, noting that its underlying principles are ethical and universal. During the question and answer period, President Al-Madani clarified further.
“I am not advocating that Islamic banking be adopted as a whole. I am just proposing that elements of Islamic banking be considered when creating the new international financial order,” he said.
That approach resonated with Aly Sanoh, a Ph.D. student in SIPA specializing in sustainable development, who said that he liked how “President Al-Madani’s position is not that this is how you should do things, but instead that it would be good to consider some principles of Islamic banking.”
Sanoh found some of those principles more appealing than others, adding that he disagreed with the zero-interest loan policy of the Islamic Development Bank.
“No-interest banking would be the end of the capitalist system. But the principle of sharing risk can be applied everywhere,” he said.
Shoden Itani, a masters student in the School of Engineering and Applied Science, had a different perspective. “There are many principles in European and American banking that have nothing to do with Islamic banking, and it would be difficult to make a transition,” Itani said.