Today, I want to talk about business and product developments as well as innovations in Islamic finance and the issues plaguing it all these years. Don’t get me wrong, we have seen a lot of developments and innovations in Islamic finance but it had been a struggle every single time we came up with something new.
It is better now but there is still a lot of ignorance in the market place across all levels of stakeholders, especially among those whom I have labelled Shariah scholar wannabes in my last column. It seems what I said then had a fairly hot reception. As the Malay saying goes, “Siapa makan cili, dia rasa pedas!”
I can’t help it if people felt I was talking about them if they see themselves as those who claim to be Shariah scholars, when in reality they do not have the authority nor the qualification to be one. If they are doctors we would be calling them quacks! However, I don’t want to belabour anymore about these people but they have unfortunately been a bane to development and innovation in Islamic finance.
A lot of our efforts to bring further progress to the industry under the guidance of real and genuinely qualified Shariah scholars have been criticised unjustifiably and irrationally by these people. Also, in many instances, these people have also been responsible for certain developments and innovations in the industry that were just wrong under Shariah. To the extent that some of them have even argued that there was no point developing or innovating for Islamic finance as an alternative to conventional finance because riba-based banking is already Shariah compliant in the first place. It is halal because there is no excessive charging of interest. So why bother developing Islamic finance at all?
Some people, including the Shariah scholar wannabes, argued that what we do in Islamic finance is not really Islamic. All the products that we have today are merely replicating and copying conventional finance. To them, Islamic finance must be different in its entirety. It cannot carry the same value proposition as conventional finance. As a result, Islamic finance fails to be competitive and a real alternative to conventional finance in many jurisdictions. Malaysia is the one exception but these weird perceptions still exist.
In order to fully appreciate development and innovation in the industry we must shed our ignorance of Islamic finance and its history. We must understand that Islamic finance is nothing new. It’s at least 1,400 years old. It has been in existence since the advent of Islam and was seen throughout the various economically rich and powerful Islamic civilisations in history. It is impossible for Islamic finance to not have been transacted in one form or another during that period. It may not have been called Islamic banking or Islamic finance but it existed, otherwise, how could Islamic civilisations become the nexus of global trade and finance for close to a thousand years?
Islamic finance was practised in several forms back then. There was the Mudharabah, murabahah, ijarah, wakaf, istisna and many more financial products that became the mainstay of commerce during that period. It is interesting to note that Islamic civilisation had developed most of the modern economic and financial theory that we know today.
A lot of financial products that we know today as conventional products such as debt/ fixed income papers or bonds, travellers cheques, registered shares, remittance, trade finance, and so on, were all developed and innovated by Islamic civilisations and later adopted by the conventional market.
If we study this history further, we will realise that a lot of these financial products that have been reintroduced into our industry today had in reality pre-existed Islam. Mudharabah is in fact 3,000 years older than Islam, developed under the Babylonian and Assyrian Empires during the Mesopotamian era. It was a product that was used and practised for everything and anything in the market then but when it was adopted by the Muslims, after the advent of Islam, it was changed, innovated upon and made to be Shariah compliant by, among others, having its use limited to productive activities that were consistent with Shariah. Wakaf was taken practically lock, stock and barrel from the Greeks.
We had a lot of development and innovation back then, which included the “Islamisation” of conventional or jahiliyah products. And it was done and exemplified by none other than Prophet Muhammad (SAW) himself. We must ask ourselves whether there really is any difference to what we are doing today. I must say the answer is a resounding no! A lot of the conventional products that we have in the market have been “Islamised” in a way where what was not Shariah compliant was made Shariah compliant.
If we really study history in the way we have developed and innovated Islamic financial products since the advent of Islam, we would note that the products that we have in the market arguably cannot be said to be “holy”. Thus, it is able to be further innovated upon and be changed. We can be creative on how we look at all these products in order to best serve the Muslim community or Ummah.
For example, if we take Mudharabah and tweak it, it does not mean that we are changing the nature of Mudharabah nor are we defeating its spirit.
Mudharabah is a product that has been adopted and adapted by the Prophet (SAW) and it will remain as a distinct Shariah compliant product.
But when we look at mudharabah and change 2% or 5% of the structure or the concept, it becomes another product altogether. It is no longer a product called mudharabah.
One can call it whatever name one desires, it will be another product that is structured in a manner that is Shariah compliant. It will still be something that we can transact and undertake in our industry today without going astray from Shariah. That is what we call innovation.
Unfortunately in many parts of the world, even in our own country, Malaysia, there are people who feel that we cannot change Islamic financial products that have been adopted or developed by the Prophet (SAW).
It is supposedly blasphemous. This mentality needs to change for the good of the Ummah. In the example given, we are not changing mudharabah. We are simply innovating mudharabah, creating another product that is still Shariah compliant. So over time, we have mudharabah, ijarah, and other things including this new product, which we have not named for example.
In fact, mudharabah exists in the conventional market even until today. It may not be a regulated activity in the financial market but mudharabah is widely practised across the globe including in Europe even for activities such as wine refinery and vineyards. We have a Shariah compliant mudharabah and a non-Shariah compliant mudharabah in the world.
So when we innovate and develop in Islamic finance, we are purely coming up with commercial products that cater to the needs of society in a Shariah compliant manner. It is the same thing when we innovate and develop products in the food and beverage sector. When we came up with the halal version of the mooncake, we were simply changing some of the original ingredients of the mooncake that were not halal and replacing it with something compliant with Shariah. If it is not blasphemous to innovate on food, then it should not be so when we innovate on financial products.
At the end of the day, the only real comparison between Islamic and conventional finance, if we really need to articulate a difference between the two, is that one is Shariah compliant while the other is not. Everything else is the same. Innovation and development is easy under Shariah but some of us are just hell bent on making life difficult for all of us.
Badlisyah Abdul Ghani is executive director and chief executive officer of CIMB Islamic Bank Bhd. This article appeared in The Malaysian Reserve, a business/finance daily published out of Kuala Lumpur.
[The Malaysian Reserve, Feb 4, 2013]
