I wrote this article at the beginning of August 2009 but have never gotten around publishing it for some reason. Now the FT.com however convinced me to publish this article finally. My humble thoughts:
The Financial Crisis has shaken up the perception of the banking and financial systems that we have gotten to know. The finance sector will inevitably undergo drastic changes in the near future. The rumors have it that the remuneration of the investment bankers will change from the purely incentive-based pay to an increased base salary and lower performance-based remuneration scheme to reduce the risk-taking behaviour that that has arguably caused this financial crisis.
At the same time all major universities are competing in finding the way for the future theories. The theories that rely on the notion that investors invest rationally are clearly overhauled and redundant. There are new school of thoughts that try to take more into consideration sociological factors along with the classical theories. However as of today no true realistic models have been developed that can really be applied and intuition remains the key decisive factor for investment decisions.
Another school of thought that gains increasing attention and in fact momentum is the Islamic Financial System. The sharia forbids banks to charge interests on loans and therefore banks will only receive the initial amount of the loan. Theoretically that does not make the banking sector very profitable because in the non-islamic banking sector interest is the main source of revenues. The Islamic banking system records a $1 trillion turnover a year with a growth rate of 15% to 25% for the past 15 years accordingto KMPG (the australian.com.au Aug 8-9,2009). La Trobe University in Australia, the National Australia Bank and the Muslim Community Co-operative Australia have now founded a university course that teaches a combination of both schools, which is an interesting development. Perhaps ESADE should start teaching about it as well in order to be thought leader.
Now the Financial Times has picked up the topic and co-organises the Islamic Financial Intelligence Summit in London on the 5th of November, 2009. You can find out more about the summit here.
‘Top 500 Islamic Financial Institutions Ranking and Research Report’.
