By Susan Peterson

Gazette Staff

It is a relatively new concept to Western finance, but a well-established practice of Islam: charging no interest and adhering to a strict set of religious laws when it comes to banking.

There are about 1 billion people whose beliefs are guided by Islam, many of whom apply this specialized banking method in a global economy. This is where Islamic economics meets the West, and the financial world is taking note.

Recognizing this growing financial arena, the Harvard Islamic Finance Information Program was founded in December 1995 as an educational resource center for students and scholars in the fields of banking, commerce, and government.

The program has developed the world's first comprehensive database of Islamic finance and banking, which will provide access to thousands of records through a CD-ROM.

The database will be shown to the public for the first time on Monday, May 12, as part of the program's first forum, "Islamic Finance in the Global Market." (See below.)

The Islamic Finance Information Program is affiliated with Harvard's Center for Middle Eastern Studies (part of the Faculty of Arts and Sciences) and is sponsored by the Islamic Investment Company of the Gulf (Bahrain). Its advisory board is composed of administrators and faculty members from around Harvard, including the Law School, Business School, and University Library System.

Islamic finance follows Sharia, the doctrine from the Koran -- the Islamic holy book -- by not charging interest, among other principles. Instead, money is made based on a partnership philosophy between the bank and the investor, through mutual funds, venture capital, and similar investment interests.

"Islamic finance has existed for years, but has only become an active participant in the international financial community in the past few years," said Thomas Mullins, associate director in the Center for Middle Eastern Studies and executive director of the finance information program. "This program places the Center and the University as a primary focal point for Islamic finance and economics in the non-Islamic world."

One does not have to practice Islam to invest in Islamic banks or financial arenas.

"Islamic finance derives from a way of life and is embedded in a value system," said S. Nazim Ali, director of operations for the Islamic finance program. "It's a global market, and intended for all of humanity -- not just for one group of people."

A traditional and established banking practice, there are about 200 banks and financial institutions that are either completely or partially Islamic in the world, and they can be involved in a broad variety of investments. Each Islamic bank has its own board of religious advisers that ensures that the bank abides by Islamic laws. The banks shun certain sectors, such as alcoholic beverages, tobacco products, gambling, or arms manufacturing.

Some banks and investment firms that have fund managers in Islamic finance divisions include Chase Manhattan Bank, Goldman Sachs, Wellington Global Administrator, and ABC Investment & Services Co.

Islamic research and scholarship is not new at Harvard. The Law School has an Islamic Legal Studies Program, and the Business School and the University's Center for Middle Eastern Studies have had scholars studying aspects of Islamic finance for years. In 1996, these schools and the Center completed the Harvard Investment Study, a three-year project which will be published as a book at the end of this summer.

But the need for a system to collect and process data, and examine trends in the Islamic finance field prompted the idea for the Harvard Islamic Finance Program.

Ali, who has a Ph.D. in information science and has recently written a book, Information Sources on Islamic Banking and Economics, was searching for a home for an Islamic finance database project when he met Mullins. They met formally during Mullins' visit to Bahrain in 1994 and launched the program at Harvard in December 1995.

Ali sees the database as an invaluable tool for researchers and students. It will include publications, financial institution profiles, Islamic deals and transactions, fund information, educational resources, country background, and a "who's who" in Islamic finance. The database will be accessible through the University Library's HOLLIS system

"This is the first phase, so it will have to be updated," Ali explained. He credits the students working with him for helping the project move so quickly.

"Harvard students' skills are unmatched," Ali said. "Without their help, I wouldn't have been able to achieve it.

"The program is fortunate to be housed at Harvard," Ali added, speaking from his Holyoke Center office. "Our main interest is to promote research. And a number of students have expressed interest in taking on a research project related to Islamic finance."

One student has already started. Aamir Rehman '99 of Cabot House, who has been working on the database for almost a year, will spend the summer studying Islamic banks in the Gulf countries of Kuwait, Bahrain, and Saudi Arabia. The Staten Island, N.Y., native is a social studies concentrator who became interested in Islamic finance through his exposure to the program.

"I'm interested in the economic theory," Rehman said. "I'll visit banks and see their operations, ask questions, and try to see firsthand how they develop their investment programs."

The forum, "Islamic Finance in the Global Market" will be held on Monday, May 12, from 4 to 7 p.m., in Harvard Hall, Room 202. Samuel Hayes, professor of investment banking at the Business School, will chair the event. It is free to the Harvard community.