“Islamic Banking in Theory: Banks and the Real Economy”

On Saturday, November 28, within the framework of the on-going online seminar “Contemporary Area Studies” the School of International Regional Studies of the Faculty of World Economy and International Affairs of HSE University organized a discussion with Ramezan Ali Marvi, Assistant Professor of Economics, Allame Tabatab'i University, on the theme “Islamic Banking in Theory: Banks and the Real Economy”.

The participants and the speaker were greeted by Head of the School of International Regional StudiesVera Vishnyakova. The meeting was moderated byElmira Imamkulieva. Allame Tabatab'i University is a new partner of HSE University and the department is looking forward to fruitful cooperation in joint research on economic, social and political issues. The representative of Allame Tabatab'i University also expressed her aspirations in developing cooperation with HSE University.

The speaker started his lecture from outlining the fundamentals of Islamic banking system, explaining how the faith is connected with the law and how the law (Shariah) influences on the economic activities of people. He specified 6 main principles of Islamic banking:

1. The prohibition of predetermined loan repayment as interest (riba);
2. The profit and loss sharing as a pivotal component of Islamic finance system;
3. Making money out of money is impermissible since all financial transactions are to be asset-backed;
4. The prohibition of speculative behavior;
5. Only Shariah approved contracts are acceptable;
6. The sacredness of contracts .

Ramezan Ali Marvi defined the Islamic Bank as a deposit-taking institution that facilitates contacts between savers and investors, and manages payment and clearing systems (EFTPOS, Cards, BRAT, etc.). Under these constraints, riba (interest, usury), gharar (excessive uncertainty) and haram (impermissible activities) are prohibited. The Islamic Bank prioritizes productivity and real economic activity rather than financial solvency.  

Another important issue raised by Professor Ramezan was maysir (gambling), which refers to any activity involving betting whereby the winner will take the bets or the loser will lose his bet. However, the scenario under which the participants try their luck and do not lose anything if not winning is allowed.

At the end of his presentation, the speaker noted that Islamic banking system doesn’t exclude the market orientation. Instead, it sets out conditions for fair trade and competition supported by the law. 

For video, please follow the link: https://youtu.be/r_EGLfYITXY