A little bit off-topic from my usual writings on politics and administration, this article was based on my attending the 7th World Islamic Economic Forum in Kazakhstan. It’s good to be exposed to all sorts of issues. First published in theSun in June 2011.
Putting the ‘Islam’ in Islamic Finance
I recently attended the 7th World Islamic Economic Forum that was held in Astana, Kazakhstan. Being in Central Asia for the first time, it held much promise of historical and cultural intrigue, which did not fail to deliver. But I was curious to know what developments the conference itself had to offer, not having attended the meeting for several years now.
The World Islamic Economic Forum (WIEF) is an annual conference organised by the WIEF Foundation, of which the Prime Minister of Malaysia is a patron by manner of his position. Its objective of gathering like-minded economists, planners, businesspeople – both Muslim and non-Muslim – is premised, as I understand it, on the belief that business partnerships and projects can solve many problems of the Muslim world. My observations are therefore both from a non-Muslim perspective, as well as someone who has watched the forum grow and mature since its earlier formative days.
The forum has attempted to fashion itself as a Davos of the Muslim world, in a sense recreating the intellectual environment amongst the who’s who of the economic and business world similar to the World Economic Forum. This is done with the hope that the ideas, networking and interactions emerging from speakers and delegates would result in actual projects to help alleviate poverty and other socio-economic situations within some of the poorer Muslim countries.
And indeed there have been successful projects initiated by them as reported – internship programmes, honing of young entrepreneurs and numerous memoranda of understanding signed in conjunction with the event. The edge of the forum and its activities external to the conference seems to lie with its focus on women and youth development.
Islamic Finance as an Alternative
But it is the philosophical agenda of the conference that is more interesting to note. The very fact that there has been a need to form such an organisation within the Muslim world per se reflects upon the circumstances facing us – and I mean both Muslims and non-Muslims – today.
For example, one of the key trends that has followed the forum from its inception to what it is today is this: that the banking and financial system instated by the Western world, the primary one in use today, is riddled with problems.
This opinion, widely shared amongst participants, was in a sense vindicated by the recent global economic downturn, brought about precisely by what they consider as potential flaws: the multitude of funds, derivatives and other sophisticated instruments in existence today which have led to the financial and real economic/trading worlds becoming increasingly divorced from the other. And more importantly, the difficulty faced in then managing the system responsibly.
The Malaysian Prime Minister, one of the speakers at the event, waxed eloquent about the need for good governance, transparency and accountability as necessary for economic development. In his speech, he said it ought to come naturally for Muslims to behave in this manner, as the religion itself requires it of adherents in any case. He did not, however, speak of what really happens in the process of its implementation (especially in Malaysia).
The natural solution, as was argued at the conference repeatedly, was that Islamic finance is the way to go. After all, there are numerous conditions requiring every instrument to be approved and certified as syariah-compliant, an assurance to customers that such services rendered would be carried out responsibly and in accordance with Islamic principles.
Indeed, Islamic finance has grown 15 percent annually over the last decade and has surpassed over USD1 trillion in assets, and some project that by 2016, the annual industry growth will reach 28.6 percent (five times the rate of conventional investing), with USD5 trillion in assets. After all, out of the 1.6 billion Muslims in the world, only 14 percent have access to financial services despite representing 20 percent of the world’s population so there is certainly room to grow.
Challenges Ahead
Although it is intriguing that there is great potential for Islamic finance to flourish, and advocates would desire it as a primary system, the challenge lies in ensuring it does not emulate what it seeks to replace.
The lively discussions on Islamic finance at the conference and within academic circles are detailed and thorough, and this piece in no way does justice to either theory or application of its complexities. However, suffice to note that everyday consumers would find little variance between conventional financial systems and Islamic finance, if the latter continues to develop in the same way as the former in its movements away from the real/retail economy.
The second challenge is for the Muslim world to develop solutions based on facts and figures, and not fall into the trap of responding emotionally to what they feel – both real and imagined – as hegemony of the Western world. It was indicated in one of the sessions that because economic problems emerge out of political problems, this then should be the forum’s focus as a precedent. Surely these are entirely justifiable sentiments, but reacting with fervour would score fewer points than with reason.
Finally, sure – good governance and all that jazz. But isn’t this something we have all heard of even within the corporate and finance industries way before Enron, Lehman Brothers and the like? Plus the fact that the conventional banking system is still very much at the forefront, with minimal changes made post-disaster. There is a greater question that has still been left unanswered. What of the human condition that seems to be naturally predisposed towards greed and power, both of which are sure-fire ways of causing systemic collapse? This is something Islamic finance scholars, practitioners and consumers would have to deal with, lest it treads a similar path as that which it criticises, especially given Malaysia’s goal of eventually becoming a global Islamic finance hub.
