Is Islamic finance a viable alternative to our present model? Photo: Alex Pang (Flickr)

As the Islamic finance sector booms, sharia-compliant systems present opportunities for growth as well as reflection on western economic models.

The second annual Middle East Islamic Finance and Investment Conference opened this week in Dubai, brightening the international spotlight on Islamic economics and financial systems. The trillion-dollar industry already has many clamoring to get in on sharia-based investments.

What makes it so different? Islamic tradition prohibits charging interest (called "riba") and borrowers and lenders are held to high moral standards. (Are you listening, Goldman Sachs?)

Profit, however, is not forbidden. Instead of the accrued interest debt that most European cultures use, Islamic financiers combine finance and enterprise to construct a profit/risk-sharing system based on equity finance - the investment and sale of stock.

However, the sharia-based financial system has the side effect of discouraging traditional, interest-based microfinance.

Recent data shows that despite the wealth of oil and mineral-rich countries, many are living below the poverty line – 23 percent in Iraq, 18 percent in Iran, 35 percent in Yemen, 28 percent in Lebanon, and 13 percent in Jordan. In these countries, 96 percent of the population is Muslim and thus avoid traditional microfinance systems.

If Western microfinance models were adapted to the Islamic sharia-based finance system, locally-based microfinance could give cash-strapped citizens an avenue out of poverty.

But this is more than just another growth sector for Islamic finance. It raises questions about the fundamentals of economics.

Do Islamic banking regulations present a viable solution to our global economic woes? In short, is this a better way?

As Islamic finance becomes a formidable force in the world’s financial sector, the rest of us would do well to take note.

Protesters wave Egypt's flag. Photo: C. Elle (flickr)

This story was republished in The Christian Science Monitor.

No one needs a report to explain what ‘Arab Spring’ youth continue to demonstrate for: jobs. But evidence that quantifies their sentiments could be the ticket to real policy change.

That’s the idea driving a partnership between an organization focused on Arab youth employment, Silatech, with the world’s leading polling and analysis company, Gallup. Rather than analyze a country’s problems by comparing traditional economic and demographic metrics—GDP and unemployment rate, age and level of education—Silatech and Gallup turn the opinions of Arab youth into comparable data.

Twice a year since 2008, the team has asked thousands of Arab youth their views about three areas the group sees as essential to driving change: job creation and availability, access to the resources they need to find meaningful employment, and the policies they see in the way of their success.

“The report offers a fresh approach to understanding how young people across the Arab world are being affected by, and are responding to, the global economic downturn. Further, this report offers a realistic view of how young people see their future, their prospects, and the paths they so earnestly wish to pursue.” - Rick Little, Silatech's chairman of the executive committee and member of the board of trustees.

With more than 100 million people between the ages of 15 and 29 in the Middle East and North Africa—30 percent of the population—the region is experiencing an unprecedented “youth bulge.” We’ve already seen how the stability of the region depends on whether these educated, healthy, young people have opportunities to be productive citizens. Policymakers have no choice but to get things right given current circumstances.

The latest Silatech/Gallup poll was conducted just before the uprisings in the region began, in late 2010, and found a mixed bag of progress. According to the report:

• Young Arabs are more optimistic about the direction of their local economies, while their perspective of national economies has soured. Policymakers should harness this sentiment by focusing economic interventions at the local level, aimed at individual cities instead of nationwide programs.
• Mobile phone access has soared among youth. Internet penetration remains low, but rising. Silatech notes that this development provides policymakers with new opportunities to communicate with this key demographic, as well as the strong potential for online- and mobile-based youth businesses.
• Fewer Arab youth perceive they can afford good housing, which correlates with limited GPD growth and skyrocketing property prices documented in the region. Youth see the lack of affordable housing as a barrier to achieving independence.
• In a number of countries, youth do not trust their government to allow new businesses to earn much money, significantly reducing their willingness to risk starting a new venture. Suggestions include policies to scale small- and medium-sized enterprises and streamline paperwork for transparency.
• In some countries, youth perception of the judicial system has improved, which helps youth feel confident that their assets and property will remain safe. Countries trailing behind in this indicator would do well to implement similar legal reforms to create the environment needed for healthy entrepreneurship.

Download the full Silatech/Gallup report here.

Silatech and Gallup’s analysis of Arab League members’ progress toward creating a better climate for job creation and entrepreneurship results in realistic policy prescriptions. These course corrections could create the change these young people catalyzed and bring significant growth to the region. But the prescriptions cost money; money the region doesn’t have, especially during ongoing global financial crises.

If President Obama’s proposed 2013 budget request is approved, some governments in the region may benefit from an influx of more than $800 million to support “long-term economic, political, and trade reforms to countries in transition—and to countries prepared to make reforms proactively,” according to Reuters.

It’s hard to change policy based on anecdote. But when emotions can be turned into cold, hard numbers, lawmakers can harness the world’s largest and most untapped resource—youth—with policies that create real change.

Gallup analyst Ahmed Younis speaks at Mercy Corps. Details

Details and tickets here.

U.N Secretary General Ban Ki-Moon says green energy is central to economic growth. Photo: United Nations Information Service - Geneva(flickr)

What can the world’s poorest hope to achieve without energy access? Not much, according to U.N. Secretary General Ban Ki-Moon.

“Energy is central to everything we do – from powering our economies to...combating climate change to underpinning global security," Ki-Moon said at the recent World Future Energy Summit in Abu Dhabi. "It is the golden thread that connects economic growth, increased social equity and preserving the environment.”

And that’s the point of a new initiative launched by the Secretary General to coordinate “the efforts of governments, finance, business and civil society towards achieving the goal of ‘Sustainable Energy for All’ by 2030.”

Dr. Kandeh Yumkella of Sierra Leone was selected by Ki-Moon to co-lead the initiative’s task force. In this video, he discusses the 'Sustainable Energy for All' project. His words on the role of the private sector in expanding energy access and boosting economic opportunity start at 3:30, but the whole video highlights a promising initiative.

RELATED CONTENT: "Microfinance can energize local economies"

Like many young people who dream of coming to the wealthy Gulf States to find work, 27-year-old Anesu Gamba came here to Dubai three years ago to escape Zimbabwe’s crippling poverty.

I met Anesu, a soft-spoken man with a round face, at the Department for Naturalization and Residency in Dubai. He went there to cancel the visit visa he requested for his brother because he could no longer afford the ticket. “I wanted him to come and enjoy Dubai, he was so excited,” Anesu said, gazing sadly at the ground.

In the beginning, his new life in the Gulf was just as he had imagined. “In the first two years, I lived in a dream, I had friends, and I bought a car," said Anesu. He was also able to send money to his mother, father and younger brother in Zimbabwe, none of whom have jobs.

But last month, Anesu didn't send his family any money. He was among several laid off by the small public-relations company that hired him as a graphic designer. The company blamed the downsizing on the global economic downturn.

About a quarter of Zimbabwe's population has gone abroad, and together they send home anywhere from $360 million to $1 billion in remittances, reports the UN news agency, IRIN. These remittances are often credited for saving the country from complete collapse.

But the burden of supporting family members abroad is heavy for those in the Gulf. Many, like Anesu, have cut other costs to keep up the remittances. Anesu sold his car and moved into a shared apartment with three other migrants. “Sending money home is not an option, it’s an obligation," he told me. "I just can’t let my family down."

Finding a new job in Dubai isn't easy these days, but returning to Zimbabwe isn't very tempting. Less than 6 percent of people living in Zimbabwe are employed, the UN said recently. At its peak last year, inflation reached 231 million percent and Save the Children reports that more than 75 percent of the population lives in abject poverty.

Anesu thinks his chances of finding a job are better in Dubai. "I have one month to find a job after the cancellation of my visa," he said. "I came to Dubai with hopes and dreams. I will try my best to find a job, even as a waiter, a dishwasher, I don’t care. At the end, I don’t have many options, do I?"

A call center in India. New U.S. policies against outsourcing jobs overseas will hurt India's IT sector the most. Photo: David Robinson (flickr)

In spite of the global recession's painful effects on most of the world's economies, India has managed to stay stable. The country even expects its economy to grow by 5 percent this year. However, this prediction came before President Obama announced that his administration would be cutting tax breaks and refusing bailout money for companies outsourcing jobs overseas.

Rising unemployment in the U.S. has renewed the political and economic debate over shipping jobs abroad. More than 1,000 U.S. firms that have outsourced jobs abroad are being criticized for taking jobs away from Americans. Countries like India — which gets more than 60 percent of its outsourcing work from U.S. businesses — will likely be hit the hardest by the Obama administration’s protectionist approach to reviving the U.S. economy.

President Obama also announced a hiring ban on foreign workers for companies receiving federal bailout money. Of the 65,000 H1-B work visas that the U.S. issues annually, 21,667 have been for Indian citizens who mostly join the information technology industry. These non-immigrant visas are granted to educated and skilled foreign workers.

But the U.S. is not alone in adopting policies against outsourcing jobs and limiting foreign workers. In Persian Gulf countries like the United Arab Emirates, millions of Indians who are employed in the construction and banking industries have been laid off and forced to return home. In the United Kingdom — where Indians are one of the most prevalent immigrant groups — the government has announced plans to potentially limit foreign workers to sectors of the economy that have documented labor shortages.

New policies against hiring foreign workers in the U.S. may have a long-term impact that policymakers are not anticipating, according to a study by Duke and Harvard researchers. With increased job opportunities in places like India and China, more than 100,000 foreign workers could leave the U.S. for jobs in their home countries. The study found that many Indian professionals in Silicon Valley have already left, and predicts many more will leave to start businesses in India.

This is bad news for the long-term economic recovery of the U.S. because nearly half of Silicon Valley start-ups, including Google, were started by immigrants, the lead Harvard researcher tells BusinessWeek. This long-term “brain drain” will mean that “when we start recovering ... the people we need are going to be in India and China,” according to the researcher, Vivek Wadhwa.

The U.S. has historically welcomed immigrants and their innovative ideas. A reversal of policy could prove to be very harmful — hurting economic growth and limiting the expansion of key industries.

Workers on a trading ship in Dubai, UAE. Photo: fleshmeatdoll (flickr)

Despite efforts by the local media to paint an optimistic picture, tough economic realities are quickly catching up with the ambitious, fast-growing city of Dubai. One indication of the gathering storm is recent news that approximately 53 percent of the planned $1.28 trillion worth of construction projects in the United Arab Emirates’ most populous city are now on hold.

Feeling the worsening global slowdown, many of UAE’s companies — mainly in the property, construction and financial sectors — have laid off hundreds of workers. Construction companies have delayed or canceled projects, banks are tightening lending and tourism is slowing. Some companies have given their employees a period of two to three months to look for alternative work — but jobs are rare because most companies are freezing recruitment.

This alarming new reality is most noticeably taking a toll on those who’ve come from other countries to seek work in Dubai. Foreigners make up about 85 percent of the local population and 99 percent of the private work force. According to the Ministry of Labor there are 4.5 million foreigners in the country, compared with 800,000 Emirati citizens. About two-thirds of the foreigners are South Asians, including most of the 1.2 million construction workers.

According to figures accumulated by Dubai’s Indian Consulate from airline records, a total of 20,000 workers from the construction sectors are leaving the UAE next month. Approximately 3,000 Filipinos out of the 300,000 in the UAE lost their jobs over the course of a single month because of the global financial crisis. And it is estimated that about 1,500 work permits and visas are being canceled in Dubai each day.

This mass exodus is causing a curious problem in the long-term parking lots of Dubai International Airport: Over the last four months, Dubai police have found at least 3,000 automobiles abandoned outside the airport.

But not all of those with grievances are exiting Dubai. The Dubai Ministry of Labor has been flooded with thousands of labor complaints, mostly from Indian workers. A local newspaper reports that many are seeking advice about pressing charges against their employer after being forced to take pay cuts, or suing for unfair dismissal.

“There are some real tragedies happening,” said Tony Maalouli, the managing director of a firm that has recently seen labor lawsuits increase by 20 percent. “Small to medium businesses are simply closing down and management is running away because of their liabilities. What they are doing is illegal, they are escaping their obligations. This is happening a lot.”

There are increasing signs that the expatriates who once flocked to Dubai in the last years are leaving. A Western diplomat notes, “There is no way of tracking actual numbers, but the anecdotal evidence is overwhelming. Dubai is emptying out.”

As the International Labor Organization predicts that the wages and jobs of more than 1.5 billion workers worldwide will be somehow affected in 2009, we can only anticipate more bad news coming from Dubai.

Dubai's Construction Skyline at Night. Photo: twocentsworth (flickr)

The financial crisis is crimping construction in the Middle East and other places that had been experiencing a building boom, Der Spiegel reports.

Developers in Dubai — once synonymous with high profit margins and high-concept architecture — have delayed lavish developments, including a chain of palm-tree-shaped islands and a $600-million Trump hotel and tower.

The slowdown has affected the migrant workers who make up the core of Dubai's workforce, 43 percent of whom call India home. The Times of India reported that thousands of laid-off construction workers have applied for visa cancellations.

Der Spiegel says developers elsewhere in the Middle East, namely Qatar, Bahrain, Kuwait and Saudi Arabia, are scaling back as oil prices fall.

And in Moscow, developers halted construction on what was to be Europe's tallest skyscraper. The Russian economy is "a house of cards that is built on Western loans and which is now collapsing," German architect Peter Schweger told Der Spiegel.

In the Gulf area, religious customs and social norms make it a taboo for women to mix publicly with unrelated men, even for trivial purposes. In a male-dominated world, this makes it nearly impossible for women to earn an income. Now, economic necessity is forcing the conservative society to accept the idea of women in the workplace.

Many women-only ventures are being created to bring more women into the country’s workforce. Mega-retailer H&M is opening the first women-only department store in Saudi Arabia. Though small female-run stores already exist, this major venture is a landmark concession by the Saudi Government.

Saudi Arabia’s newest hotel is also women-owned, women-managed, and women-run – from the IT engineer to the electrical engineer. Until January, women could not check into any hotel alone unless accompanied by a male family member or if they had written permission from a male guardian.

Saudi and UAE banks have set up segregated branches for women only. In the UAE, a government holding company has set up an investment company run by women for women. These facilities allow women to manage their finances independently of prying fathers, brothers or husbands.

Home businesses and business dealings are also starting to crop up. The Economist reports, Western female bankers are seizing this opportunity and travel regularly to the region to hold private meetings with female clients in their homes.

Saudi official Faisal bin Muammar said high unemployment among Saudis and the reliance upon seven million foreign workers was forcing the societal change. “We cannot go on having seven million foreigners [at work] and our graduate women in their houses.”

To some, the Gulf’s women-only places are a sign of progress; for others, it simply reinforces gender segregation. Whatever the case, there are still problems for women gaining access to capital. It is difficult for female businesswomen to obtain loans, especially if they are not from prominent families. Even in Bahrain, where nearly one-third of businesses are registered by women, some can only get a business license in their husband's name. This just goes to show that the idea of women in the workplace has yet to fully materialize.

Photo: El Ojo Inoportuno (flickr)

A London-based architecture firm is looking to bring some green to the deserts of the Persian Gulf. Construction is set to begin next week in the United Arab Emirates on a completely solar-powered community called Masdar City. If all goes according to plan, the 2.3 square mile community will be car-free and will produce all of its own energy from sunlight.