Intention and Islamic banking
Tuesday, April 24, 2007
NAYSAYERS are saying that the current Islamic finance boom — a message brought home during the recently-concluded International Conference on Islamic Financial Development Sector here — is merely conventional banking sectors' indulgence towards the Muslims' religious zeal for things Islamic.
Critics say that large usury-based financial companies are telling Muslims so, "you want Islamic banks? Fine, we are giving you those" before creating subsidiaries to cater to the demands and finding a board of scholars whose task is to ensure clients of the halal-ness of the Islamic banks' operation. They are saying that given the dependence on conventional finance, the so-called Islamic banking is a hypocritical system because it remains debt-based even if syariah-compliant.
They are saying that equity-based, debt-free financing does not make for a stable banking sector — which was non-existent in the seventh century Muslim community built by Prophet Muhammad (peace be upon him), anyway — and thus could not be free from the pressures facing any other kinds of finance. They find faults in Islamic banking products and their developments, calling them to be mere efforts to skirt around religious scriptures so Muslims can retain their feeling of being pious while ensuring profit on top of everything.
In the face of such criticism, the optimists among the proponents are usually able to display evidence that not only is Islamic banking here to stay but to grow. Though anecdotal, available statistics are heartening.
One scholar told a forum of the Harvard Islamic Society at the Harvard Business School earlier this month that the Islamic financial industry in the United States grew 30 per cent between 2005 and last year.
The General Council of Islamic Financial Institutions in Bahrain says the on-balance sheet assets of Islamic financial institutions amount to nearly US$300 million, with a compound growth rate of 23 per cent over 10 years.
According to the Chicago-based fund research service company Failaka, the number of Islamic equity funds (excluding Asian funds) grew from 22 in 1994 to 122 in 2005, with about US$13 billion in assets under management. The Private Equity Monitor of Zawya, a business information company focused on the Middle East and North Africa, shows that Private Equity investment in those areas grew from US$316 million in 2004 to US$5.19 billion last year, with an increasing part of it structured under Islamic supervision.
The pessimists among us may question the ulama who envision Islamic finance as the economic arm of an Islamic political order. They may question the rationale of an Islamic finance that is not so "Islamic" because it is still an evolving industry trying to obtain a foothold on society, or its viability or even its usefulness in aiding the economic and social development of the Muslim world.
A saying of Prophet Muhammad that, "Verily, all actions are but driven by intention and for everyone is what he intended" should be one among many answers to be given to the naysayers and pessimists.
The other answers should be given over time through hard work to cultivate the Islamic approach to all aspects of life, including finance. Brunei Darussalam has its tasks lined out during the recent Islamic finance conference. Given its small size, the country should find it easier to incorporate the Islamic approach into its national strategy as part of a synergy between the public sector, business experts and the people of Brunei.
Better economic welfare for all, and a divine reward depending on the intention, is the profit that Brunei can hope to make from taking the route of Islamic finance.
Critics say that large usury-based financial companies are telling Muslims so, "you want Islamic banks? Fine, we are giving you those" before creating subsidiaries to cater to the demands and finding a board of scholars whose task is to ensure clients of the halal-ness of the Islamic banks' operation. They are saying that given the dependence on conventional finance, the so-called Islamic banking is a hypocritical system because it remains debt-based even if syariah-compliant.
They are saying that equity-based, debt-free financing does not make for a stable banking sector — which was non-existent in the seventh century Muslim community built by Prophet Muhammad (peace be upon him), anyway — and thus could not be free from the pressures facing any other kinds of finance. They find faults in Islamic banking products and their developments, calling them to be mere efforts to skirt around religious scriptures so Muslims can retain their feeling of being pious while ensuring profit on top of everything.
In the face of such criticism, the optimists among the proponents are usually able to display evidence that not only is Islamic banking here to stay but to grow. Though anecdotal, available statistics are heartening.
One scholar told a forum of the Harvard Islamic Society at the Harvard Business School earlier this month that the Islamic financial industry in the United States grew 30 per cent between 2005 and last year.
The General Council of Islamic Financial Institutions in Bahrain says the on-balance sheet assets of Islamic financial institutions amount to nearly US$300 million, with a compound growth rate of 23 per cent over 10 years.
According to the Chicago-based fund research service company Failaka, the number of Islamic equity funds (excluding Asian funds) grew from 22 in 1994 to 122 in 2005, with about US$13 billion in assets under management. The Private Equity Monitor of Zawya, a business information company focused on the Middle East and North Africa, shows that Private Equity investment in those areas grew from US$316 million in 2004 to US$5.19 billion last year, with an increasing part of it structured under Islamic supervision.
The pessimists among us may question the ulama who envision Islamic finance as the economic arm of an Islamic political order. They may question the rationale of an Islamic finance that is not so "Islamic" because it is still an evolving industry trying to obtain a foothold on society, or its viability or even its usefulness in aiding the economic and social development of the Muslim world.
A saying of Prophet Muhammad that, "Verily, all actions are but driven by intention and for everyone is what he intended" should be one among many answers to be given to the naysayers and pessimists.
The other answers should be given over time through hard work to cultivate the Islamic approach to all aspects of life, including finance. Brunei Darussalam has its tasks lined out during the recent Islamic finance conference. Given its small size, the country should find it easier to incorporate the Islamic approach into its national strategy as part of a synergy between the public sector, business experts and the people of Brunei.
Better economic welfare for all, and a divine reward depending on the intention, is the profit that Brunei can hope to make from taking the route of Islamic finance.
Business Besides Oil
