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Making Islamic Finance Beneficial for Future Human Civilization: A Reflection

by in Islamic Finance
Making Islamic Finance Beneficial for Future Human Civilization: A Reflection

(The edited version of this article was first published by Kuala Lumpur based Islamic Finance News in May 2011)

By Farouk Abdullah Alwyni

Islamic Finance has now steadily been practiced in many parts of the world, from the Gulf region, South-East Asia, Europe, and Australia. More and more Islamic financial institutions, banks and non-banks, have been set up, and along with this trend many major Western financial institutions have established their own Islamic windows.

The question now, is the growth of Islamic Finance really contributing to the creation of more ethical finance, sustainable development, and more equitable economy? Some parts of the Islamic Finance researchers have already expressed scepticism that Islamic finance in form of Islamic banking has just become a carbon copy of conventional Banking, where most of the dominant type of financing is just debt-financing in form of Murabaha and Ijarah.

As a new mode of finance, it is certainly difficult for the Islamic Finance to differentiate itself totally from the conventional finance. However, the real debate actually is in the challenge of integrating the form and the substance of the Islamic Finance. Without its substance, the Islamic finance could be just another type of finance, losing its just, ethical, and caring spirit. However, it is also important to bear in mind that Islamic Finance in form of Islamic Financial Institutions, at the end of the day, is still a profit-making entity.

There are shareholders and depositors expecting the profit through using Islamic Financial Institutions. Here, of course, we cannot contradict between the social & moral mission of the Islamic Finance and profit-oriented Islamic financial institutions. Without generating profit, Islamic Financial Institutions will not be able to sustain its existence. Thus, it is clear that to ensure its sustainability the Islamic financial institutions need to be able to generate profits for its shareholders and its depositors.

Then, how can the Islamic financial institutions differentiate themselves with conventional financial institutions? Here, the challenge will be how the Islamic Financial Institutions can project themselves as value-based institutions that have objective bigger than just making profits, that can say that profit is important, but not everything.

Actually, under the present circumstances, there is a posibility of convergence between modern conventional financial institutions and Islamic financial institutions in term of spirit. We see nowadays more and more major International financial institutions work to reconcile between the profit motive and social responsibility, we see some ads of a major financial institution that tries to reconcile between the conscience and the profit, to say that not everything important in the world can be counted.

Thus, actually, there is no such thing “re-inventing the wheel” for the Islamic financial institutions to stay true to its very foundation of its establishment, that is to be consistent with principles of the Maqasid Shariah (the objectives of Shariah), and practice them into the real and daily life of the society. By keeping its commitment to its very spirit, the Islamic financial institutions basically will be in the fore-front of the future financial institutions.

The Islamic financial institutions will be the embodiment of the concept of sustainable development, caring economics, and future corporations. The corporations that will not compromise its values for short-term profits.
Islamic financial institutions will treat the profits only as a by-product, not an ultimate goal, the ultimate goal is to bring maslahah to the society, to add value, to contribute to the ceration of more sustainable world and better human civilization. In short, Islamic financial institutions should aspire to have bigger objectives, and will let the profit come on its own.

However, in the world dominated by short-tem thinking, to realize the aspirations above is not that simple. It will need enlightened shareholders and top management to subscribe to those concepts also. They are the people who need to understand that establishing Islamic financial institutions will need their commitment beyond profit. Again, this concept actually is nothing new also.

In Jim Collins’ two research-based remarkable books, Good to Great and Built to Last (together with Jerry I. Poras), it was shown that many enduring companies in the US put the profit not as a sole objective, but only as a result. In Good to Great, a book that discusses ‘the timeless principles of good to great, on how to take a good organization and turn it into one that produces sustained great results.’

Based on his five years research with 21 research associates, involving a wide range of qualitative and quantitative analyses and examined 1,435 Fortune 500 companies plus interviews with key executives, Collin writes:

“Enduring great companies don’t exist merely to deliver returns to shareholders. Indeed, in a truly great company, profits and cash flow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life.”

In Built to Last, a book about visionary companies, companies considered the best of the best in their industries, and have been that way for decades, Collin and Poras write:

“PROFITABILITY is a necessary condition for existence and a means to more important ends, but it is not the end in itself for many of the visionary companies.”

The researches above show that ‘bigger objective’ orientation is one of the common characteristics of most major international companies. Therefore, if Islamic Financial Institutions subscribe to objectives bigger than profit, then, it is actually similar with those great companies.

Here, the Islamic Financial Institutions could position themselves not only as shariah-based profit making entities, but as entities desiring to contribute to more sustainable, equitable, and caring economic system. The system that will create virtuous cycle, and reinforce goods for others.

Moreover, for the Shariah-based financial institutions, they should take the above bigger objective to more transcendental in nature, and not just aspiring to worldly greatness, although in the process, these Islamic-based institutions may become great and enduring. Having these visions in place will really place Islamic financial institutions in a unique position, this is how they at the end will not only become the engine of profit, but also the engine of common good.

Tagged in: islamic finance
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