Islamic finance: Tunisian fruit sellers and financial democracy

Last updated on: July 13, 2011 at 4:00 am by Guest Contributor

Islamic finance: Tunisian fruit sellers and financial democracy 2011-07-13T04:00:14-04:00 Guest Contributor

LOGO Patheos Explore the world's faith through different perspectives on religion and spirituality! Patheos has the views of the prevalent religions and spiritualities of the world.

Bouazizi had a dream

The Arab Spring opens an interesting window of opportunity for financial inclusion of the devout. Islamic finance was implicitly linked to the Muslim Brotherhood – much like ‘creeping Shari’ah in selected G-20 countries – by ex-dictators in the Middle East and North Africa (MENA) region to keep themselves entrenched and the populace ignorant, on edge and suppressed.

Could it be said that in denying Islamic finance, these Muslim ‘leaders’ were encouraging interest-based lending and finance, hence contravening the teaching of the Qur’an? The Qur’an mentions explicitly the treatment of ‘…those giving and taking of interest [and those witnessing the transaction]…’ (2:278-279). Have these leaders have implicitly invoked God’s wrath on themselves as ‘disbelievers’ of Islamic finance in Muslim majority countries? For these leaders, fear of the Muslim Brotherhood was apparently greater than fear of Almighty.

But history was made in our lifetime by a highly educated but jobless Tunisian fruit and produce seller, Mr Mohamed Bouazizi, whose act of desperation sparked a revolution that bullets and bullying could not suppress. The end result: one gutless dictator with a hairdresser wife can now make multiple umrahs locally, another will soon be joining his sons on a ‘farm,’ where his rivals resided, and our man ‘Moammar’ is, well, a piñata in waiting.

The Arab democracy is real-time in the making, from cleaning house and recovering the stolen assets of future generations to establishing new political parties for credible parliamentary elections. It was the 2008 ‘Obama – Yes, we can’ moment. Obviously, Islamic finance just does not evoke the same human emotions or interest, but for many mosque-going citizens, issues related to savings, financing, and investing must also be addressed.

The ‘policy’ question is how introduce (in Tunisia and Libya) and reconnect (in Egypt) meaningful Islamic finance without it viewed as part of a Muslim Brotherhood agenda. In other words, how do we avoid going from secular suppression to spiritual manipulation? To showcase an established and meaningful Islamic finance approach, two countries, Malaysia and United Kingdom, have become prime examples of secular democracies with an inclusionary Islamic financial hub since the 1980s. Neither country is a hot bed of extremism or suppression.

The message about Islamic finance must be a combination of public-private partnership and, most importantly, about the right products and services that are market-driven and commercially viable. Concurrently, there may be decades-old pent-up demands for Islamic finance, but building a holistic approach in enabling environment will take time.

First, Islamic finance needs to a public-private partnership, acting as a system of checks and balances, where the former provides the level regulatory and tax playing field and the latter provides the products and customer services. Thus, a top down and bottom up approach (as conducted in Malaysia) could be a proper stage-managed growth roll out.

The last thing the region, the man on the street, or Islamic finance needs is another Egyptian-type Ponzi scheme of the 1980s. Any Islamic financial entities – in the Gulf Cooperation Council (GCC), Europe, or Asia – interested in the MENA region need to curb their enthusiasm for selling ‘Islamic loans/funds.’ They need to understand that although there is a real first mover advantage, it entails education, awareness, and yet more education to build interest and desire before loyalty can be nurtured.

Second, Mr. Bouazizi showcased two important financial issues. One is that wholesale corruption prevents any benefits reaching the intended audience with appropriate consequences. Secondly, banks had not financed the entrepreneurial economy, which will ultimately absorb the many unemployed and underemployed.

The priority in the region is not Islamic hedge funds, derivatives, and possible even equity mutual funds, but funding and financing start-ups and expansion capital for small businesses. The question to ask is how many such businesses in the region are bankable, have bank accounts or have invested in the local stock exchanges? The simple answer is not many.

Conventional banks have not been able to address the needs of the local start-ups and Islamic banks will probably continue to target established bankable and investable entities. However, those at the ‘bottom of the pyramid,’ the starts ups and the non-real estate entities requiring expansion capital may well continue to flounder without the requisite ‘attention financing.’

However, Islamic finance can move beyond the rhetoric of financial inclusion and social justice and actually be a contributing stakeholder in the revolution for financial democracy. Let the people decide between Islamic finance and/or conventional banking by their deposits, by their funding and financing needs, by their investment needs, and so on. If Islamic finance is indeed a solution, then it must be stress tested in the market places of ideas and demands.

A two-prong approach may be the way forward. An Islamic Development/Industrial Bank should be initiated for financing selected sectors based upon applied research. Also, pilot programs tied to the real local economy should be funded: micro-finance, micro-funds, SME financing, etc., with focus on mudarabah (fund financing) and musharaka (partnership financing) funds.

Presently, many Islamic banks in the GCC outsource fund management to established asset management firms, and the same approach should be deployed in MENA’s developing democracies with seeded funds and incubated over one/two years. This becomes another asset class with geographic diversification for Islamic banks and their investors.

For Islamic banks, new geographical markets withoutt a comprehensive regulatory and supervision environment is typically a ‘DND’ – a “do not disturb” sign. But a professionally seeded, mandated and operated Islamic fund may be the entry strategy to serve the funding needs of the likes of Mr Bouazizi.

It is morally and ethically difficult to tell financially disenfranchised people to wait for funding until Islamic banking regulations develop or a scholar’s sign off is in place. Islamic finance needs to be both human and relevant to all people seeking the dignity of a livelihood for themselves and their families. Otherwise, what’s the difference?

Rushdi Siddiqui is the Global Head of Islamic Finance at Thomson Reuters. Recognised as a thought-leader in Islamic Finance, Rushdi was a key force in the creation of the Dow Jones Islamic Index, and is now a leading advocate of the convergence between Islamic Finance and the Halal industry.

Commentary

Previous Post

July 10, 2011

Compassion towards another: One man fights for his shooter’s life

Next Post

July 20, 2011 British Muslims: Contributing more than you might think

Browse Our Archives

Select a Category 2012 Elections 30 Dayd 30 Writers (2017) 30 Days 30 Writers 30 Days 30 Writers (2015) 30 Days 30 Writers (2016) 30 Days 30 Writers (2018) 30 Days 30 Writers 2017 Ali Asadullah Ali Eteraz Alper Bilgili Arthur Richards Asides Asma Uddin Black History Month Briefings Charles Turner Commentary Cyrus McGoldrick Eman H Aly Fatimah Popal Hajj Hajj and Dhul Hijjah Hesham Hassaballa Hisham Hellyer Ibrahim Abusharif Inas Younis Irfan Yusuf Jalal Baig Junaid Afeef Laila Alawa Laila Alwala Mas'ood Cajee Muqtedar Khan Nakia Jackson Newsmakers Parvez Ahmed Podcasts Rabia Chaudry Rafia Zakaria Ramadan Reviews Safiyyah Ally Saud Inam Shahed Amanullah Svend White The Opinionated Oncologist Visions Wajahat Ali Zahed Amanullah Zahir Janmohamed Zainab Khan

Select a Month November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 May 2018 April 2018 March 2018 February 2018 January 2018 December 2017 November 2017 October 2017 September 2017 August 2017 July 2017 June 2017 May 2017 April 2017 March 2017 February 2017 January 2017 December 2016 November 2016 October 2016 September 2016 August 2016 July 2016 June 2016 May 2016 April 2016 March 2016 February 2016 January 2016 December 2015 November 2015 October 2015 September 2015 August 2015 July 2015 June 2015 May 2015 April 2015 March 2015 February 2015 January 2015 December 2014 November 2014 October 2014 September 2014 August 2014 July 2014 June 2014 May 2014 April 2014 March 2014 February 2014 January 2014 December 2013 November 2013 October 2013 September 2013 August 2013 July 2013 June 2013 May 2013 April 2013 March 2013 February 2013 January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 August 2006 July 2006 June 2006 May 2006 April 2006 March 2006 February 2006 January 2006 December 2005 November 2005 October 2005 September 2005 August 2005 July 2005 June 2005 May 2005 April 2005 March 2005 February 2005 January 2005 December 2004 November 2004 October 2004 September 2004 August 2004 July 2004 June 2004 May 2004 April 2004 March 2004 February 2004 January 2004 December 2003 November 2003 October 2003 September 2003 August 2003 July 2003 June 2003 May 2003 April 2003 March 2003 February 2003 January 2003 December 2002 November 2002 October 2002 September 2002 August 2002 July 2002 June 2002 May 2002 April 2002 March 2002

TAKE THE

Religious Wisdom Quiz

In the beginning was the Word, and the Word was with God, and the Word was what?

Select your answer to see how you score.

The Spirit Good God Logos