Due to the global economic crisis and failure of the prevailing financial system of the world, economists, financial experts and industrialists around the world are looking at Islamic finance and the economic system with sheer optimism.
Islamic financial system has turned a frequent discourse in most of the universities, research centers and debates in various western and European countries. Attractiveness of Shari’ah compliance financial services to non-Muslim investors seeking “ethical” investment and banking practices is the best example to prove its credibility.
If courses on Islamic banking are introduced in universities, a new chapter of hope will open to a large chunk of students to learn a banking system based on ethics.
I remember the days when my mother would teach me etiquette and would punish me harshly if I behaved against her taught lessons. But that is now a bygone exercise as we have reached new excellences and do not feel the necessity of ethics; be it in business, finance or other engagements.
At present, in this professional business world, we hope to take up new deals in all future endeavors; there is hardly anybody so value ridden and ethically cognizant, who can teach us the ethics and etiquette related to our new deals. The blame can’t be laid down upon the teachers of finance because of the reality of the system. The system has been developed in such a way where it is taught that profit is the only goal which needs lifelong endeavors, and not a single chapter exists from which the concept of moral values or ethics can be learned.
Under the finance nomenclature, only efficiency and wealth creation have become the key concepts. Capitalism creates a mind-set which impoverishes the moral authority of so many institutions. According to Christovan Baroque – a well known Brazilian economist and a former rector of the University of Brasilia: the failure of capitalist financial system lies in ignoring social and ethical values.
Another author by the name James Robertson says, “It must be recognized that because human beings are moral beings the basic question about economics are moral questions.”
Man’s goals may include not only economic well being but also ethical values and socio-economic justice, sanctity of life, property and individual honor as well as social harmony.
When I recall my past, I hardly remember a single chapter of economics and finance where moral values were discussed, the result of which is that we started turning capitalist unconsciously and our perspective of looking at everything got completely changed and to started to judge things in terms of our own benefit rather than thinking of giving benefit to others.
Coming back to Islamic banking, it is the fastest growing sector of the banking industry today; yet very few city boys know much about it and hardly any finance student is being taught in the discipline.
The Islamic banking system is based on profit-and-loss-sharing and there is no place for Riba (interest). Despite being dependent on profit-and-loss-sharing, the industry is doing very well. According to some estimates, the industry is growing at 15% to 20% annually; and it is not restricted to Islamic countries. It is spreading wherever there is a sizable Muslim community.
In the recent past, it has also caught the attention of conventional markets. Since Riba (interest) is Haram (prohibited) in Islam, Muslims do not want to be caught in the conventional financial system that is based on Riba. Muslims have to abide by the ethical system of Islam in their way of life.
The world financial system has to look for structural changes. A plausible option is Islamic finance to be established at the grass-roots level to achieve long-term goals. Its ultimate objective includes the maximization of social benefits, as opposed to profit maximization through the creation of healthier financial institutions to serve the needs of the masses, rather than just a handful of people.
In the initial days, this industry may face some hurdles which are apparent in nature, but effective research would be very fruitful.
The world economy is undergoing rapid financial revolution dominated by the stock market rather than productive investment in agriculture and manufacturing activities. Such an unhealthy situation has led to an increase in the rate of unemployment in the western world, and is inflicting its social consequences on their own societies. In these economies (and through the speculation in the stock market), the elite in the corporate sector have suddenly become richer through gambling in order to acquire quick profits.
If the culture of speculation and manipulation dominates the minds of people rather than physical labor and hard work, then indeed, the western world is in a real crisis; not only economically and financially but socially as well.
Whereas the Islamic framework of business norms includes several elements such as justice, fair dealing, fulfillment of covenants, payment of liabilities, mutual cooperation, removal of hardship, fair pricing, generosity, detriment and truthfulness.
[Kashif Hasan Khan is a doctoral scholar on Islamic Banking and Finance in the Center for West Asian Studies. He can be reached via email at: kashif_islamicfinance[at]yahoo.com]