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54
Section 5. Finance
Sultanov Serik,
Almaty Management University, Kazakhstan E-mail: 8234767@gmail.com
ISLAMIC BANKING IN KAZAKHSTAN AND ITS FINANCIAL INSTRUMENTS IN THE CONTEXT OF THE CONCEPT OF THE POTENTIAL MODEL OF THE FINANCIAL SYSTEM
Abstract: The article is devoted to the peculiarities of the development of Islamic model of the financial system in the modern world. The goals, arguments for and against the introduction of Islamic banking both in the world as a whole and in Kazakhstan in particular, and the use of Islamic financial instruments are analyzed. The prospects of expanding Islamic financial products in the Republic of Kazakhstan are considered.
Keywords: Islamic banking, Islamic financial instruments, Islamic business, Sharia law, Musharaka, sukuk.
Formulation of the problem
In the economic literature until recently, researchers identified two models of financial systems:
• market (stock) or Anglo-American;
• Banking or Euro-continental, or German-Japanese.
At the beginning of the 21st century, considering the economic shifts in the Muslim financial world, the scientific community began to talk about the formation of an Islamic model of a financial system based largely on a religious basis using Islamic law - the Sharia. Islamic financial institutions have developed activities on an international scale, and Western-style financial institutions have instead established branches in Muslim countries. During the global financial crisis of 2008, Islamic banks practically did not suffer, and in the conditions of liquidity crisis their services were in great demand. Therefore, in the current conditions of the introduction of Islamic finance is an urgent issue of the economic policy of non-Muslim countries.
Analysis of recent research. The analysis of Islamic banking and its financial instruments involved such foreign researchers as L. Alnaser, M. Tsihak, I. Saba, M. Yun. Among domestic scientists who dedicated their works to this subject, it is necessary to name first of all such scientists and experts as V. Korneev, A. Snezhko, A. Stankov, etc. But today it is difficult for scientists to make unambiguous predictions as to how widely Islamic banks will spread in Kazakhstan or when Kazakh financial institutions will begin to provide services using Islamic financial instruments.
The purpose of the article is to elucidate the specifics and prospects for the development of Islamic banking and the role of Islamic finance in the context of current trends in international economic and political relations between the Muslim and Western worlds.
Main results of the study. Recently, the Islamic financial model has increasingly attracted the attention of the scientific community. The growth of Islamic banks, based on Shariah laws, especially against the
backdrop of the financial crisis and its consequences, looks contrasting.
Despite the fact that the fundamental concepts of Islamic banking are rooted in history for 1400 years, real Islamic financial institutions have emerged quite recently. The first Islamic savings bank Mit Garm Bank originated in Egypt in 1963. It served the peripheral areas of the country, using the conservation of the population for the issuance of loans on the basis of joint participation. [5, p. 272].
At the same time, such an Islamic bank appeared in Malaysia, so that Muslims could postpone the Hajj. But the actual beginning of the development of Islamic banks is 1975, when the Islamic Development Bank was established in Saudi Arabia, and the Islamic Bank of Dubai in the United Arab Emirates.
There are two factors that contributed to the establishment of Islamic banking:
1) revenues from oil exports by the Persian Gulf countries;
2) the revolution in Iran 1979.
The centers of Islamic finance are the following countries:
• Iran, where there are no Western banks at all. In the year 2009. Iranian banks accounted for 40% of the total assets of the 100 largest Islamic banks, and Bank Melli Iran is considered the largest among them. Iran accounts for $235 billion of Islamic financial assets. According to the Top 500 Islamic Finance Institutions rating of Tae Banker, seven of the first 10 positions are held by Iranian financial institutions;
• Saudi Arabia and the United Arab Emirates, which account for more than half of the Islamic banking assets of the countries of the Council for Cooperation of the Persian Gulf countries;
• Bahrain, where the largest number of Islamic banks are concentrated - 35;
• Malaysia, which is considered to be the innovative center of the Muslim financial world (a vivid example of this is again the special offshore zone Labuan) and outstrips the development of this area of the Persian Gulf country for almost a decade.
Today in Malaysia there are five banks that provide exclusively Islamic financial services, and 14 foreign banks, including HSBC, Oversea-Chinese and Standard Chartered, offer services that comply with Sharia law [7; 15].
According to the report Kuwait Finance House Research Ltd, in September 2010. Islamic banking accounted for 16.6% of the banking assets of the countries of the Gulf Cooperation Council, and in Kuwait - 34.3%. As of the end ofMarch 2010, the largest Islamic banks in the region are Al Rajhi Bank in Saudi Arabia and Kuwait Finance House in Kuwait with assets of $46 billion and $40 billion, respectively [5].
According to Euromoney Islamic Finance Review, the Islamic finance sector demonstrates the highest growth rates on the planet - 15-20% annually, and during the crisis - at least 10%. Islamic banking is practiced by more than 400 financial institutions in 75 countries around the world with total assets of approximately $815 billion and an annual turnover of $11 trillion. It is expected that by 2019 the total assets of Islamic banks and financial institutions in the RK will grow to $1 trillion. [9, p. 10]. Moreover, there are 400 Muslim direct investment funds operating in different countries with over $5 billion in management and 250 mutual funds ($50 billion), although this is a drop in the bucket compared to $22 trillion. in the management of mutual funds around the world.
At the same time, Ernst & Young predicts that the market for asset management under Sharia law will show growth once financial stability is restored [5]. According to the estimates of the experts of the Islamic Financial Services Authority in Kuala Lumpur (Malaysia), the Islamic financial industry, which arose in the 1970s, as a niche industry, by 2020 can increase its assets to $2.8 trillion. [9, p. 10].
It is logical to ask: what is the secret of success? Let's highlight several reasons:
• First, the Sharia principles prohibit creditors from entering into risk transactions, that is, investing in "virtual" assets, such as derivative financial
instruments or derivatives, that contributed to the crisis of the Western financial system. All financial transactions are connected with the transactions of tangible assets, so the probability of "soap bubbles" is minimal. Banks are characterized by high liquidity and a high coefficient of capital adequacy.
• Secondly, when the bank issues a loan of "musharaka", it acts as a participant in the borrower's transaction and shares with it both profits and losses. In Europe, this is called leveraged buy-out lending.
• Third, for the accumulation of resources, instead of traditional deposit accounts, contracts on mutual trust are used, that is, instruments that are not paid in advance and are made on the basis of the distribution of prospective profits with the financial institution.
• Fourth, Islamic banks should avoid the situation of uncertainty - "Garar", which threatens big losses, therefore they maintain a high level of reserves and participate in special cooperative insurance.
• Fifthly, during the crisis and post-crisis narrowing of the credit market, due to lack of liquidity in the West, Islamic banks had excess liquidity, which was secured by the growth of petrodollar revenues, caused by a record jump in oil prices [7, p. 14].
To all certain economic advantages, it can be added that Sharia law prohibits Islamic banks to finance the production of alcohol, tobacco, pork, the gambling industry and pornography, which obviously preserves the morality of society. [3]
These and some other rules make Islamic banking more effective than the American-European, which was proved during the last global financial crisis. This fact is recognized even by the IMF, which sees the secret of success in an individual approach to client companies, which allows a more qualitative assessment of the risks and that Islamic banks are interested not only in the receipts of payments for credit, but also in the profits of the debtor company. Therefore, they select borrowers more carefully than they do in the West. According to the IMF study "Islamic Banks and Financial Stability", which exam-
ined the results of the activities of 77 Islamic and 397 traditional banks in 12 years, it turned out that small Islamic banks with assets do not exceed $1 billion, A third more effective than Western financial institutions such the same size and a quarter - those whose assets crossed the mark of $1 billion [2].
The most important current direction of Islamic banking is the development of the medium-term debt securities segment - Islamic sukuk bonds. Sukuk is considered an alternative to syndicated financing.
The world market sukuk fell from $39 billion in 2007. up to $7.6 billion, in 2009, in 2010. We note that the positive dynamics resumed at the updated stage: for the first half of 2017, the gross issue of sukuk was $1.95 trillion. ( in annual terms, $30 billion). [5].
It is characteristic that Malaysia accounts for 2/3 of this market.
To consolidate the success of the Malay financial institutions have decided to offer two new products on the Kuala Lumpur Stock Exchange:
• The first is the Commodity Murabahah, which will allow you to invest in palm oil trading;
• The second - which will allow accepting and lending bonds in compliance with Shariah rules.
To trade sukuk seeks to join Japan. The agency Moody's assumes the volume of their sales in the market of this country in the amount of $0.5 billion. Hong Kong, Singapore and Indonesia also show interest in this tool.
At the same time, it should be noted and the negative properties of the sukuk market. In times of crisis, it was more vulnerable than other bond markets. According to the agency S & P, for the period 2016-2017 gg. the volume of corporate and government sukuk sales fell by 56%, while for traditional international bonds the negative dynamics did not exceed 5% [4, p. 23].
The new strategy of Islamic banks is currently focused on small and medium-sized enterprises, which is partly due to economic benefits, on the one hand, and on the other hand, means that the previous strategy of targeting individual large-cap enterprises and
giant corporations does not meet the obvious goals the development of Islamic banking [5].
Despite significant successes, it is possible to single out a number of problems of the Islamic model of banking activity and corresponding financial instruments directly in the Republic of Kazakhstan:
• Low capitalization - the average size of the capital ofthe majority of Islamic banks does not exceed $25 million - compared to Western banks [8, p. 5];
• Unification of the financial instruments used, the predominance of large, including family, owners, investors in equity, the absence of small proprietors and speculators, which indicates the closed and limited liquidity of markets where the Islamic financial model is used;
• Difficult access to business information, which limits the ability of the interested party to analyze the quality of financial management of Islamic financial institutions, their risks and the structure of assets;
• Lack of proper regulatory framework, which must take into account the requirements of activities within the financial system of another country and simultaneously comply with the norms of the Shariah [7, p. 15];
• The absence of unified bodies for the management of Islamic financial institutions [14].
Note that Islamic banks provide services in the US, Europe, and Asia.
Some believe that the main object here is the United States, where capital flows from the Middle East through Britain and Luxembourg [9, p. eleven]. But equally important is London, where five Islamic banks operate reliably, led by the Islamic Bank of Britain, founded in 2004. Last in the midst of the crisis in September 2008, it began to attract new customers by launching a mortgage lending program under Sharia law. Characteristically, most of the traditional British banks have introduced so-called Islamic windows, where financial services are provided under the Sharia. At the present stage, the government is also actively discussing the issue of issuing sukuk. In fact, today it is the UK that is the center of Islamic
banking in the North Atlantic, which is the merit of the Labor Party [3]. In other European countries there are also good prerequisites for the development of Islamic financial instruments. It is primarily about Germany, Sweden and Belgium, where 3-4% of the population are Muslims, and especially France, where their share is 10%; after them the native inhabitants will also be drawn [9, p. eleven].
However, it should be noted that as a result of the crisis, the experts consider the Asia-Pacific region, which accounts for 60% of the assets of Islamic banks, is approximately $600 billion as a result of the crisis [6]. Investors from Saudi Arabia, the United Arab Emirates, Bahrain, Qatar are already sending their capital to such countries as China, India, Indonesia. Western banks, including HSBC, Citibank, Deutsche Bank, Societe Generale, also open branches in Muslim countries [1, p. 20].
Islamic banking is also being introduced by developing countries. For example, in Ethiopia, the National Bank is completing the development of a Sharia-compliant banking regulation. And in Tanzania, Stanbic Bank and the National Trade Bank issued their own Islamic financial instruments. Many other African countries consider it possible to host branches of Middle Eastern banks on their territory. A new strategy of targeting small and medium-sized enterprises will find application in Africa, because the sector of large corporations is still small there [5].
Islamic finance has not bypassed the post-Soviet space, where, above all, Russia, Azerbaijan, Kyrgyz-stan and Uzbekistan should be mentioned. So, in Russia in 2000. The first Islamic bank Badr-Forte was opened on the territory of the CIS. He specializes primarily in the financing of trade with countries in Asia and Africa [7, p. 15].
Speaking about Kazakhstan, it should be noted that Kazakh "Bank TuranAlem" (BTA) is actively engaged in attracting resources and financing using Islamic instruments. In particular, in July 2007, syndicated borrowing in the markets of the Middle
East and Malaysia totaled $250 million. In early 2009, amendments were adopted to the Kazakh legislation, which allowed working with Islamic financing instruments. According to Fattah Finance, in February 2009, the first company specializing in providing services in accordance with the principles of Sharia was created. In November 2009, the Kazakh authorities announced that the Ministry of Finance, with the help of the GSCC Bank, will issue Islamic sukuk bonds for the first time in the history of the country.
In addition, it is planned to open in Kazakhstan a bank "Al-Hilal", a subsidiary of Al Hilal Bank from the UAE [13].
In the near future, the activities of Islamic financial institutions can be extended throughout the territory of Kazakhstan. Following the banking products in Kazakhstan, a takaful insurance system may appear. From the usual insurance takaful differs in that the company does not take risks, but only acts as the administrator of the fund, formed from the funds of participants. The State Commission for Regulation of Financial Services Markets of the Republic of Kazakhstan notes that today the takaful companies in the country can not work in
full force - they are hampered by legislative restrictions. The insurance company has to keep most of the clients' money in instruments, on which interest is charged by Islam, including on deposits and in securities [21]
However, nothing prevents the insurer from entering into an individual contract with a bank or an investment company that will not conflict with the norms of the Sharia or the laws of the Republic of Kazakhstan. By the way, in Kazakhstan today the reinsuring risks of takaful companies from Egypt, Libya, Sudan, Malaysia and other Muslim countries, whose activities are regulated by the Shariah [11].
Conclusions. The practice of Islamic banking in the context of the formation of the traditional services sector, but under the new mechanisms, spreads quite quickly. In conditions of maintaining high oil prices and expanding capital markets, Islamic finance is increasingly affecting world financial markets. In our opinion, in the short term, Islamic financial institutions will expand at a rapid pace across the whole of Kazakhstan, for which there is already soil and a corresponding need. And the experience of Islamic banks deserves attention of the banking management of Kazakhstan.
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