Is Islamic Finance Truly An Alternative To Conventional Finance?

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1.       Is Islamic ϐinance truly an alternative to conventional ϐinance? ISLAMIC FINANCE By Youssef Aboul-Naja Islamic ęnance, which is a centuries-old practice and which was revived and brought back into the limelight in the mid-1970s, is far more than an alternate mode. A simple web search on the term ‘Islamic ęnance’, or any specięc Islamicbased ęnancial product, will yield many results highlighting how it is an ‘alternative’ to conventional ęnance. These results are a mere reĚection of the existing literature surrounding Islamic ęnance. But is it truly an alternative? From a Muslim individual’s perspective, Islamic ęnance is not just an alternative to conventional ęnance. If the Maqasid Al Shariah (the purposes of Shariah law) is used as the starting point of reasoning, it can be observed that ‘preservation of wealth’ is one of the ęve purposes, with the other four being the protection of faith, life, lineage and intellect. The term ‘preservation’ in this context, extends beyond one’s self, as man is merely a guardian on this wealth bestowed upon him by the Almighty God. Accordingly, preservation here embodies social justice underpinnings, for example, giving the poor their share of wealth through Zakat (donation). Considering that Riba (interest) promotes social injustice, which goes against Maqasid Al Shariah, it is therefore prohibited; this ban is best highlighted in the Holy Quran: “O ye who believe, fear God and quit what remains of the Riba if ye are indeed believers; but if ye do it not, take notice of war from God and His Messenger.” As such, painting Islamic ęnance as an alternative mode of ęnance is true to nonMuslims, but is Ěawed otherwise. The discussion thus far has been wholly theological. From a practical standpoint, one must assess the current landscape of ęnancial oěerings, and ęgure out how the theology may be incorporated; in a perfect world, it should be the other way around. Nonetheless, when undergoing the said exercise, various incompatibilities may be cited. These impediments are usually countryspecięc, depending on that country’s Islamic ęnance penetration level. But general themes do emerge. © In countries where the penetration level is high, some shy away from Shariah compliant products stressing that they are devoid of the Islamic economic substance or spirit; the products only appear Islamic due to their legal form. In countries where the penetration level is low or nonexistent, the argument revolves around the lack of available Shariah compliant services. Though conventional ęnance is widespread, it is far from perfect; the 2008 crisis is a good example. Coincidentally, conventional ęnance also underwent an overhaul in the 1970s, with the introduction of many paradigms, resulting in new products. The point is, with any science, it will always remain a work-in-progress. Perfection is never aĴainable. This is also the case with Islamic ęnance. Since the 1970s, the industry has already cut many miles in the so-called 1,000-mile journey. Therefore, Muslims must not shy away from it but instead embrace it, which is easier said than done. IFN Sector Correspondents CROSS-BORDER FINANCING Fara Mohammad, director of Islamic ęnance, Foot Anstey CAPITAL MARKETS: Suhail Ahmad, CEO, Hikmah Capital Corp DERIVATIVES Suhaimi Zainul - Abidin, treasurer for Gulf-Asia Shariah Compliant Investment Association and advisor to 5Pillars GLOBAL ECONOMIC OUTLOOK Tariq Alrifai, expert, Islamic investment products and market trends LAW (EUROPE): Ayhan Baltaci, aĴorney at law, Bereket & Baltaci Law Firm LAW (MIDDLE EAST) Bishr Shiblaq, head of Dubai oĜce, Arendt & Medernach LEASING: Youssef Aboul-Naja, Ijarah specialist, a supranational banking institution MERGERS & ACQUISITIONS: Tushar Garg, associate, bulge bracket investment bank MICROFINANCE (ASIA): Dr Mahmood Ahmed, executive vice-president and director training, Islami Bank Training and Research Academy MICROFINANCE (AFRICA): Mansour Ndiaye, director of microęnance, Assistance and Consulting for Development PRIVATE BANKING & WEALTH MANAGEMENT: Thomas Woods, product development, wealth management, The Islamic Bank of Asia PRIVATE EQUITY & VENTURE CAPITAL: Arshad Ahmed, partner, Elixir Capital PROJECT & INFRASTRUCTURE FINANCE Anthony Coleby, head of corporate commercial department, Said Al Shahry Law OĜce (SASLO) REAL ESTATE Philip Churchill, founder partner, 90 North Real Estate Partners REAL ESTATE (MIDDLE EAST): Yahya Abdulla, head of capital markets — Middle East, Cushman & Wakeęeld But all ęnancial institutions are eěectively service providers; the investor’s behavior is what dictates their oěerings. It is no surprise that many conventional banks are providing Shariah compliant channels to large corporate and governmental entities in the pursuit of the tremendous growth that the industry has been exhibiting. It is also not a surprise that these entities happen to have ęnancial clout. Unfortunately, not many channels are available at the individual level. As part of one’s mission in preserving this entrusted wealth, Muslim individuals collectively should ‘vote’ on how their investments are to be placed and handled. Only then, when Islamic ęnance becomes a necessity, will channels be created, allowing the industry as a whole to further reach sustainability. REGULATORY ISSUES (ASIA) Intan Syah Ichsan , chief operating oĜcer, Samuel Aset Manajemen Any public opinion or media appearance is the author's independent personal opinion and should not be construed to represent any institution with whom the author is aĜliated. TAKAFUL & RE-TAKAFUL (EUROPE): Ezzedine Ghlamallah, director, Solutions Insurance and Islamic Finance in France (SAAFI) Youssef Aboul-Naja is an Ijarah specialist at a supranational banking institution. He can be contacted at yaboulnaja@gmail.com. 17 REGULATORY ISSUES (MIDDLE EAST): Mohammad Abdullah Malik Dewaya, head of Shariah compliance and audit, Maisarah Islamic Banking Services RETAIL BANKING: Chowdhury Shahed Akbar, oĜcer, Southeast Bank, Bangladesh. RISK MANAGEMENT: Hylmun Izhar, economist, Islamic Research and Training Institute, Islamic Development Bank Country SECURITIES & SECURITIZATION: Nidhi Bothra, executive vice-president, Vinod Kothari Consultants STOCK BROKING & TRADING: Athif Shukri, research analyst, Adl Capital STRUCTURED FINANCE: John Dewar, partner and head of Islamic ęnance, Milbank, Tweed, Hadley & McCloy SUKUK Anthony Coleby, head of corporate commercial department, Said Al Shahry Law OĜce (SASLO) SYNDICATED FINANCE Damir Galiev, portfolio manager, AK BARS Bank TAKAFUL & RE-TAKAFUL: Dr Sutan Emir Hidayat, assistant professor and academic advisor for Islamic ęnance, University College of Bahrain TAKAFUL & RE-TAKAFUL (AFRICA): Uwaiz Jassat, acting head of Islamic banking, Absa Islamic Banking TRADE FINANCE Anthony Coleby, head of corporate commercial department, Said Al Shahry Law OĜce (SASLO) TREASURY PRODUCTS: Naęth ALHersh Nazzal, Islamic banking specialist, certięed ęnancial and investment advisor IFN Correspondents are experts in their respective ęelds and are selected by Islamic Finance news to contribute designated short sector reports. For more information about becoming an IFN Correspondent, please contact sasikala.thiagaraja@redmoneygroup.com ͳʹ–Š —‰—•– ʹͲͳͷ