Harbus

Issue date: 4/23/07 Section: News

Panelists Samuel L. Hayes III (from left), Aamir A. Rehman, and Ibrahim Ward talk to audience members.

"This is a historical event. We haven't ever had any events about Islamic Finance at HBS that I am aware of," said Samuel L. Hayes III (HBS, '61), Jacob Schiff Professor Emeritus. Hayes was a principal contributor to the Harvard Islamic Investment Study and the author of seven books, including Islamic Law and Finance.
Hayes, the first speaker of the panel, explained basic concepts and principles of Islamic Finance to the audience. Islamic Finance refers to a system of finance or banking that is consistent with Islamic law (Shariah) principles. His "Islamic Finance 101" started with the guiding principles of the Prophet Mohammed, the historical founder of Islam: "Be fair with all others," and "one party cannot exploit the misfortune of others."
As a result, usury (the collection and payment of interest), in addition to any forms of speculation trading in financial risk is prohibited because it is considered gambling, which is also forbidden. Hayes pointed out that Islamic finance places emphasis on a philosophy of investing which closely resembles the idea of "socially responsible investing." Islam does not permit the investing in businesses that are considered unlawful (haraam) and contrary to Islamic values such as those related to illicit drugs, weapons, alcohol, pornography and terrorism. Moreover, Islamic law prohibits borrowing money by using collateral and selling account receivables, which are commonly used financial practices by companies. Hayes said that businesses run by Islamic principles pay monetarily for their religious devotions.
Ibrahim Ward, an adjunct professor at the Fletcher School of Law and Diplomacy and an international consultant specializing in global finance, gave his speech on the historical background and industry overview of Islamic finance. He said that commerce has always been central to Islamic tradition since the Prophet Mohammed, who himself was a merchant, established elaborate business ethics and commercial rules.
Modern Islamic finance began in the early 1970s, at the intersection of two important developments in the Islamic world: the rise of pan-Islamism and the oil boom. In the wake of the political movement advocating the unity of Muslims under one Islamic state and the quadrupling of oil prices, the Organization of the Islamic Countries agreed to create the Islamic Development Bank in 1974. Ward stressed that the real beginning of modern Islamic finance started with the development of this bank. During the 1970s and 80s, Pakistan, Sudan and Iran embarked on a full Islamicization of its banking sector.

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