Iran and the future of Islamic banking and finance

Provided that as unfolding events promise Iran begins trading and increased economic dealings with the larger outside world, it will also present a challenge to the global consensus whether Malaysian or Arab on Islamic banking and finance. It will be a test of sectarian styles whether a long established notionally fully Islamic (and as such the largest of its kind measured by assets in a single country) banking and finance system can engage with now established standards in the industry. There are several scenarios that might unfold: 1) other states will continue to marginalise Iran on the basis of divergent standards and interpretations of Islamic law (as a proxy for sect), 2) Iranian banks and financial institutions will drop claims to being Islamic in a rush to engage with larger markets and institutions not purporting compliance with Islamic law (whether or not this departure is overtly stated), 3) Islamic financial institutions outside Iran will actively engage with it and its banks and institutions, resulting in a meeting of minds and operational practices (rapprochement) either as a result of a) outside standards accommodating Iran, b) Iran accommodating other (Sunni) standards, or c) genuine synthesis.

Although foolish to predict option 2 is most likely, and most probably reinforced by a reluctance of Islamic financial institutions to rapidly act on other opportunities for engagement. It would be ironic indeed that where a long-time enemy (the US) might make peace and a new relationship with Iran the international Islamic banking and finance community were unable to do so despite the obvious benefits of cooperation and expansion into a significant retail and investment market. Even with this as with other scenarios however there will be scope for legal professionals in finance and banking (as well as trade and other business enterprises) in Iran. The size and potential dynamism of the country and its economy should not be underestimated by any quarter.

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