Developing a Sustainable Islamic Finance Through Genuine Islamization by Mohamed Aslam Haneef

  

Developing a Sustainable Islamic

Finance Through Genuine

Islamization

  Mohamed Aslam Haneef Department of Economics &

  Islamic Economics and Policy Research Unit

  IIUM

Synopsis

  IBF has made tremendous progress over the last 4 decades but still criticised

• on ‘authenticity’ issues, blamed partially on ‘Islamization’ efforts that are

  equated with ‘patchwork’ In actuality, Islamization of Knowledge (IOK) is an important intellectual _th
• response to modernity in the 20 century; Part of ‘islah’ and ‘tajdid’ movements throughout Islamic history

  IOK calls for genuine creative synthesis of both Islamic heritage and

• contemporary knowledge. However, IOK has been misunderstood at the intellectual level; the term ‘Islamization’ has been abused at the practice level ‘Genuine Islamization’ is needed, both at the academic and practice levels, if
• we want to have sustainable IBF. Creating Qualified Human Resource/Scholars and IBF practitioners is central in
• the quest for a sustainable IBF

Outline of Presentation I

  IBF at 40- Positive Impact but With Tensions

  II. Central Challenge- Qualified Human Resources

  III. Need for Genuine Islamization

  IV. Islamic Economics and Islamization

  V. Operationalizing Islamization- Academia and Practice

I. IBF over the last 40 years

• Islamic banking and finance (IBF) has become, rightly or wrongly, the main practical manifestation of Islamic economics and of the ‘Islamisation of economics/knowledge’ project that began in the mid 1970s.
• Track record of IBF is impressive in terms of numbers and to a certain extent, in content.

Despite the positive strides made, there have also been criticisms of IBF, for example

  1. issues of ‘islamicity’ and ‘originality’ (of products and instruments)

  2. issues of products and instruments used (especially between academics and practitioners)

  3. issues of qualifications of those involved in academia and IBF practice 4. issues on the role and competency of the shar ah advisory process.

  

Tensions in Contemporary IBF

  1. How Islamic is IBF? - theory of IBF vs. practice of IBF; theory of debt financing vs. practice of debt financing

  2. Are we asking the right questions?

• modifying instruments vs. going beyond; trying to fit shari’ah

  into current banks vs. do we need banks; other types of IFIs?

  3. What is Shari’ah and its implications on IBF? - Al-Attas (1978) and the ‘Corruption of Knowledge’ i.e. important terms narrowed in meaning; overly fiqh-legal orientation of IBF and ‘shari’ah compliance’; role and qualifications of shari’ah board

II. Central Challenge- Qualified Human Resource

• IOK requires interaction between al-turath al- Islamiyy and modern knowledge
• Meaningful and genuine IOK (i.e genuine creative synthesis) requires qualified scholars who are comfortable with both Islamic heritage and modern knowledge

  

Problem with Scholars

• Modern economics and finance scholars- the main developers of Islamic economics and finance
• Have they ‘mastered’ their modern disciplines, especially the history and philosophy aspects?
• Do they have sufficient knowledge of Islamic heritage? Are taking a couple fiqh courses sufficient?
• Some may have ‘mastered’ modern finance but knowledge of turath is minimal or even non-existent; some even look down on ‘Islamic’ dimension as they see it to be ‘khutbah material’.
• Some are ‘captive minds’ to modern economics/finance

Traditionally Trained Scholars

  

Great expectations from them since ‘Islamicity’ of IBF depends on them

• However, many have not really ‘mastered’ turath. Usually limited to

• knowledge of fiqh rather that the full spectrum of the turath (in many

  universities in the Muslim world, Islamic economics is found in the Faculty of Shari’ah (Law), rather than in the Faculty of Economics) Exposure to modern disciplines of economics and finance minimal, if any.
• Hence, ‘subservient’ to the existing modern frameworks (and the dictates of IBF industry); wait for change to happen in modern finance first! Some modern scholars who are inclined to Islamic economics are accused
• of having shallow knowledge of modern disciplines; some are criticised if their views go against mainstream and if they do not display use of math/econometrics, even if their views may be worthy/correct

  

Cases

  To allow for ownership and long-term participation in the economy; not short-term liquidity and hence, proliferation of speculation; Mid 1980s article in Islamic economics vs. recent article in Economist

  2. Waiting for Change to be Initiated by Others – why the reluctance/inability to move?

  Sale contract requires ownership of asset that is being sold. In

  IBF practice, this is ‘questionable’, partly due to legal framework. Why this framework not changed? Waiting for ‘west’ to change first? Post 2008 crisis may see

this. (In other types of systems, ownership is possible)

III. IBF at Cross roads- Need for Genuine Islamization

• IOK calls for genuine creative synthesis of both Islamic heritage and contemporary knowledge
• Genuine Islamization is needed, both at the academic and practice levels, if we want to have sustainable IBF

  

Islamization of Knowledge

• Although one could argue that IOK began with revelations from Allah and in particular, the revelation of al-Qur’an; was continuously renewed over the centuries by reformers and scholars, for purposes of our presentation we will focus on

  

th

  IOK in the later part of the 20 century

• Many scholars in many parts of the world contributed to the reform movement; to seek indigenous solutions to problems faced by the ummah
• For the current topic- Late 1960s and 1970s saw IOK promoted by Al-Attas and Al-Faruqi as main proponents

  

Why IOK?

• Ummah plagued with numerous ills
• Source of problem is in realm of knowledge and education
• Corruption of knowledge and Dual education system
• Modern disciplines taught in Muslim countries are basically

  ‘western’ i.e. they developed over the last 300 years in western Europe/ America

• Based on worldview, portrays values of modern western civilization and developed using an epistemology that negates revelation as a source of scientific disciplines

  

What needs to be done?

• Rebuild knowledge frameworks according to twin

  epistemological sources of naqliyyah and aqliyyah

• Integrated education system
• Develop disciplines that will solve problems of ummah and humanity
• Convert/Transform those theoretical frameworks into practice/policy

  

IV. Islamic Economics and

Islamization

• Although writings on IE can be traced to the 1940s, before

  1980s, writings on Islamic economics were not specifically talking about ‘Islamization of economics’

• writings of pioneer Islamic economists like Mahmoud Abu Saud, Khurshid Ahmad, M.A. Mannan, M.N. Siddiqi, Anas Zarqa and Monzer Kahf and scholars such as M. Baqir Sadr and Mahmud Taleghani did not focus on Islamization per se but were presenting Islamic economics according to their understanding.

  

Cont.

nd rd

  The works of subsequent 2 and 3 generation scholars presented

• Islamic economics in the form of ‘Islamized modern economics’,

  albeit in more sophisticated/robust works, either attempting to

  modify neoclassical economics or adding elements from alternative schools

  However, very few, if any, truly focused on ‘methodological and

• epistemological’ concerns.

  But IOK/IOE is by definition and interactive and methodological

• concern. Hence genuine IOE was not given proper attention.

  What we found was IBF had ‘hijacked’ the agenda (even name of

• International Conference on Islamic Economics had to be changed!)

  

IOE in Practice

• Practical dimension of Islamization in late 1970s but especially

  1980s

• – Pakistan – Iran – Sudan – Malaysia Besides issues on Islamic State and implementation of shari’ah laws, IBF the main manifestation of this dimension

Why IOE?

• Based on IOK agenda, modern economics is not value-free nor is it ideology-free.
• All modern disciplines in the social sciences taught in universities in the world were born in the last 300 years and have ‘foundations’ that represent western European history and experience (Read al-Attas, 1978, Ch. 1)
• Many aspects of this worldview (and its implications on the way we see the human being and relations to other human beings and nature) may not be in line with the Islamic worldview. Hence many policy tools may also be unacceptable.

Al-Attas (1989) What is needed?

• Critical examination of the methods of modern science
• Of its concepts, presuppositions (assumptions) and symbols
• Its empirical and rational aspects and those impinging upon values and ethics
• Its theory of knowledge

  These will have significant impact on the way we build models, theories and what we teach students- and also in the textbook contents.

  

Why IOE - Practice?

• Muslim society demanded indigenous solutions to economic/development problems
• 1980s saw establishment of ‘Islamic institutions’ in Pakistan,

  Iran, Sudan and Malaysia

• Islamic Banks were established to show that it was possible to offer Islamic alternative to conventional banks

  Performance so far? Numbers are impressive; Content also positive…… but criticisms also on the increase.

What is IOE?

• Based on the IOK agenda, IOE by definition, implies critical interaction/dialogue with modern economics. (even critics of

  IOK/IOE do not disengage completely)

• Critical evaluation of not only modern economics but its foundations too
• One major weakness in contemporary Islamic economics literature has been this oversight and neglect of the history and philosophy of modern economics

  

What is IOE- cont.

• IOE is (based on IOK)
• – de-westernizing modern economics and then infusing it with Islamic values/principles
• – Recasting modern economics by eliminating, amending, reinterpreting and adapting its components according to worldview of Islam and its values/principles
• – Both the above imply that focus of IOE is primarily an epistemological and methodological concern that require ‘some sort of integration of knowledge based on Islamic sources with that generated by modern social science sources/methods

  

What is IOE- cont.

• Practical dimension- ‘Patchwork’?
• – Islamic banks have been established
• – Islamic banks accused of replicating practices of conventional commercial banks, but making it ‘shari’ah compliant’- this has been (mis)termed by some as ‘Islamization’

  While fulfilling immediate needs, should we carry on this path or have alternatives?

  V. Operationalizing IOE and the Human Resource Challenge

  

Islamic Heritage Modern Knowledge

Islamization of Knowledge (Economics)

  

IOE and Curriculum/Textbooks-cont.

• Can we use the modern economics textbooks?
• Should we maintain the textbook outlines of modern economics?
• Should we attempt to infuse ‘Islamic input’ at the end of the chapters or infuse Islamic input in every topic/section?
• Or should we separate the Islamic input from the modern economics in different courses/ programmes?
• Requires comparative study of IE/IBF curriculum

  

What is IOE in Practice- cont.

• Can we Islamize conventional commercial banks?
• Can we adopt the practices of conventional banks?
• Can we use the evaluation criteria used to evaluate the performance of conventional banks?
• However, in IOK- some degree of assimilation is needed. How and What?
• Simplistic Islamization vs. Genuine Islamization

  

Operationalization

• - The Need for Human Capital

• Before undergraduate/ graduate curriculum can be effective, we must give prior attention to the academics that are going to present this integrated curriculum and in the reference materials/textbooks that are to be produced.
• ‘Creating qualified academics’ must be addressed first or at least simultaneously.
• IOK agenda is meant for academics
• At the same time, there is also a need to create qualified practitioners in the industry- how to think outside the ‘mainstream box’

Challenges in Realizing Genuine Islamization: The Academia

  1. ‘Mastery’ of modern economics Substantive knowledge

  Is neo-classical/keynesian economics enough?

• – What level of theory sufficient to perform IOE?
• – What about other schools of thought?
• – What about other disciplines like history, sociology,
• – political science etc?

  

Cont.

• – Cannot have IBF without IE.
• – Cannot develop genuine IBF based on conventional economics base.
• – Cannot have IE without its foundations (philosophy).
• – Cannot have meaningful IBF without giving attention to ‘foundations’.

  Very few exposed to this.

• – How will this affect our textbooks?
• – Need to look at our present human resources, our exposure, strengths and plan for the future with our objectives in mind.

• – Have neglected very important dimensions in our human resource

  planning- sacrificed long-term sustainability for short-term expediency?

  2. ‘Mastery of the Heritage’

  

Challenges in Academia-cont.

  Substantive knowledge

• – What from our heritage is relevant to develop contemporary Islamic economics?
• – Current emphasis is on fiqh and to a lesser extent usul al- fiqh? Is this sufficient?
• – What about kalam, falsafah, history? Ulum al-Qur’an and ulum al-hadith? Etc.

  

Cont.

• • Methodological knowledge in Islamic heritage

• – Very little, If anything is available and is being taught

  (besides the usul al-fiqh courses)

• – Is knowledge of Usul al-Fiqh sufficient to develop contemporary Islamic economics?
• – we need to develop a new discipline ‘Methodology of

  Islamic economics/ usul al-Iqtisad al-Islami’?

  

Challenges in Academia-cont.

Creative synthesis i.e Integration between turath al-Islami 3

  and modern knowledge/economics, knowing what to eliminate, reject etc, and how to interpret and approach the problems faced in society today, cannot be considered separate from the process of thinking itself.

  The lack of (1) and (2) has not enabled us to do (3), hence efforts in trying to produce intellectually sound articles, readings materials and textbooks on Islamic economics leaves a lot to be desired.

To build Islamic economics

• We need to have a body of knowledge that we call Islamic economics (nature, scope and definition)
• We must be able to argue (rationally, coherently, logically) the reasons how and why that body is legitimate and the principles that make Islamic economics legitimate
• We must be able to develop theories based on our assumptions and to translate these into practice
• Ultimately, IE/IBF must be ethically superior to conventional economics and finance

  

Challenges to Genuine IOE-

  

IE/IBF in practice

Need for detail knowledge of who run IBF industry

• What knowledge and skill are required? Strengths and
• shortcomings?

  The need for training and education- content provided must also

• create thinking out of the conventional box
• – Is it necessary to have bankers take one or two courses in fiqh or better to provide the operational side of genuine IBF?
• – Important to provide ‘foundations’ to bankers in an appropriate way

  Require to amend laws etc. to allow Islamic banks to function; even

• more important the political will to deliver Requires correct ‘social capital’

Conclusion 1

  IBF has made tremendous strides.

  2. For sustainable IBF, need genuine Islamization- ask right questions and understand what we want to do

  3. Genuine Islamization based on IOK agenda i.e. knowledge and education is primary focus, ultimately focusing on creating qualified human resource

  4. To operationalize genuine Islamization, academics must acquire pre-requisites, especially in the foundations of both the heritage and modern economics. In substantive knowledge, exposure to wider fields of knowledge needed (both in heritage and modern sciences)

  

Conclusion-cont.

  5

  . In-house exposure to these issues for short term solution, but proper HR planning is the way out for the long term

  6. For the industry, there must be proper HR planning to send the practitioners for further training and education to expose them to both the heritage and modern finance.

  7. Genuine Islamization also requires political will and legal/institutional reforms

  8. Academic institutions have to find ways to cooperate and collaborate to utilize scarce human and financial resources in IE/IBF education.

  Wa alLahu a’lam Thank you mdaslam@iium.edu.my