Islamic finance forum offers mixed messages

Sometimes a subject is so vast that well-defined terms of reference have to be decided in advance when it’s discussed, so as to retain some degree of useful focus.

That point occurred to me last week when attending a broad-ranging conference in Dubai on Islamic finance, which drew upon basic principles of Sharia-compliance while mostly deliberating on the realities of the industry today. It gave a fascinating compendium of competing ideas and drivers.

One roundtable session in particular exhibited the mix. From the stage, there was the contention from an academic panellist that original precepts had been misinterpreted and had to be revisited in absolute terms (as quite regularly claimed), while in the hall a voice closer to practical operations in the sector insisted that, provided the appropriate, designated regulator’s requirements had been met, then all concerned should move on (essentially a policy decision). In a way, that’s a familiar kind of distinction, namely between theory and practice.

It struck me that what had to be resolved for our collective enlightenment was whether we were primarily talking about (i) Islamic finance as a concept, and universal matter, or (ii) the prospective growth of this emerging segment of the financial world as it actually exists, or (iii) the expectations of customers who may or may not be committed solely to Sharia-compliance, for whom the conventional alternative is a realistic and certainly well-known option, so that revealed demand would lead supply, and Islamic finance would respond to the market rather than seek to define its ways.

Distinction

In other words, if not too summarily, whether any given platform on Islamic finance is actually about the financial dimension of Islam or, with the converse emphasis, the Islamic dimension of finance.

It may be worth making that, or some kind of, distinction. Otherwise, conversation could proceed interminably in circles, at cross-purposes, even while mutually agreed on promoting what is meant to be an ethical, sustainable, participatory approach to finance.

To cite a recent, prominent and pertinent news item as an example — namely Dubai’s declaration that it aims to become an Islamic economic hub — clearly that project, in fact explicitly, transcends the financial sphere.

The presentation leading Fleming Gulf’s conference, by Harun Kapetanovic, economic adviser to the Department of Economic Development, made it clear that the emirate’s intentions concern the economy as a whole, with the core message that certain standards of management should be applied across the board.

He later referred to the dilemma that Islamic finance has in deciding whether to converge with international practices or adjust its mindset to integrating with economic development. In that regard, “Islamic banking is an oxymoron,” he said, and the sector should move away from banking’s preconceived cornerstones and instead move towards equity-based notions.

The host of following speakers created the basis for an exercise in comparing and contrasting, reflecting their distinct, respective presumptions towards Islamic finance.

The tangle of ideas was best exemplified by the differing notions that arose of standardisation, which, as Jamal Al Hazeem, CEO of BMI Bank of Bahrain asserted, “is a must … for the industry to be accepted not only regionally but globally”. (Were we — the challenge suggested itself — referring to standardisation of ideals, instruments or documentation?)

Separately, he maintained that central banks, needing to take charge from scholars, nevertheless had to change their culture towards financial institutions, which in fact were their clients, and that regulation would be better for such interaction. As it is, Islamic finance “is not prepared for tomorrow,” he lamented. “It needs the right tools to grab its potential.”

Plentiful liquidity

Also a private sector practitioner, Mashreq Al Islami CEO Moinuddin Malim, spoke of Islamic finance converging into the mainstream, but needing to work also towards risk-taking/sharing, so as to “uplift the social fabric of the economy”, chiming with broader aims. Talk on these matters in the Gulf had been too prolonged, he argued, so that the plentiful liquidity in the region was tied up in banks or real estate rather than, by implication, channels that might be more productive.

That implicitly modernising theme was truly brought home by Anass Patel, founder of a non-profit organisation promoting Islamic finance in France. He demonstrated a passion for facilitating the shifting market in Europe, to cater for those adhering in some sense to Islamic finance, but wanting to be co-creators of the products they would use, utilising new technologies and even resorting to the contemporary innovation of ‘crowd investing’. “Finance is an enabler,” he declared, with a real-economy rationale; but it should also be market-driven.

Ultimately, all these issues, from fundamental tenets to flirtations with pragmatism, relate to whether it is enough to meet the spirit of Islamic finance, or instead its disputed letter, and indeed what Islamic finance is actually for. On that score, as ever, variations on tradition may clash with the modalities of the day.