There has been much praise for the outstanding growth of Islamic finance in such a short period of time. However, little consideration has been given to how Islamic finance is in fact bringing back to the fore some of the impressive achievements of the Islamic civilisation during its golden age. According to Dr Sofiza Azmi, Islamic finance is the link that connects the glory of the golden age to contemporary society.
Islamic finance for an increasing number of Muslims is part of a new lifestyle. For others, it is an extension of their Islamic identity. Although it seems like a commercial phenomenon, Islamic finance has wider social implications. Indeed, it can be used for not only reformation of Islamic juristic thinking but also bring about social reformation of Muslim communities around the world. In some countries, like Malaysia, Islamic banking and finance has certainly contributed in terms of widening employment opportunities for the bumiputra, especially those who come from a religious educational background. In other countries, such as certain Middle Eastern countries, it is being used as a tool for enhancing financial management. In the
Western world, Islamic banking and finance is being looked into as a possible solution to the volatility in the marketplace. In a nutshell, Islamic banking and finance has become a modality for the renaissance of Islam and an alternative market mechanism. Without doubt, the unparalleled growth in Islamic finance has played a significant role in the revival of the Islamic civilisation that we see today.
The golden age of Islam
At the zenith of its glory, Islamic civilisation was characterised by unrivalled intellectual achievement across all disciplines of knowledge. During this golden age of Islam, the Islamic world was a cauldron of cultures which collected, synthesized and significantly advanced the knowledge gained from other civilisations. Places of worship and educational institutions such as mosque, madrasa, libraries supported this advancement. Cities like Baghdad, Cordoba and Toledo were known as centres of civilisation and knowledge where scholars, both Muslim and non-Muslim, gathered, discussed and investigated. A large number of educational institutions, research centres and great libraries were established in these cities where scientific books were kept with religious ones. In the Western part of the Islamic world, extensive efforts were made to translate many of the Muslim works from Arabic into other languages, especially in the fields of astronomy, mathematics, medicine, chemistry, botany and philosophy. This golden age of Islam was also the golden age of knowledge and education.
The growing international interest in Islamic finance has fuelled a similar growing interest in Islamic studies in the West. The recent two decades have witnessed the explosion of scholarly works and writings related to various aspects of Islamic economics, banking and finance. The development of knowledge in these disciplines has been so impressive that it has become difficult to keep pace with the growing literature produced by an international assortment of scholars and researchers. The global interest in Islamic economics and finance transcends nations, languages and cultures. Many Western scholars have studied and written on Islamic economics, banking and finance. Islamic finance education has also gained significant momentum. Islamic economics and finance courses are now taught as an academic discipline in academic institutions in the Islamic and Western countries. We have also seen top business schools in the West incorporating elements of Islamic finance into their MBA programs. The global growth of Islamic finance has encouraged professional bodies and private entities to offer certificates, diplomas, undergraduate, masters and post-graduate degrees in Islamic finance and economics. The growing interest and advancement of knowledge in Islamic finance attests to the revival of Islamic civilisation.
The second characteristic of Islamic civilisation is its geographical spread. The knowledge gained in science, geography, algebra, medicine, arts, economics and literature in the Islamic world spread through the Middle East and North Africa into Europe and across Asia to the border of China. Trade, commerce, technology, music, arts, philosophy, architecture, law and education flourished and developed across the vast cultural highway created by the Islamic world. San Simon, a French philosopher, wrote in his book The Anthropology: “the one who studies the various structures of human civilisation, he can’t deny the big cultural role of Muslims and Arab in building the scientific renaissance of modern Europe.” Similarly, growth in Islamic finance has not been confined to the Muslim world, but spans across the West and the Asia Pacific region where the growth is driven by commercial considerations. There are now more than 300 Islamic financial institutions operating worldwide across 75 countries. The broadening geographical base for Islamic financial services has seen Islamic finance moving beyond its historic boundaries into new territories. An increasing number of financial centres in the West, eager to profit from the lucrative Islamic financial businesses, are looking to make appropriate regulatory and legal reforms that would facilitate provision of Islamic financial products. Financial centres such as London, Hong Kong and Singapore have already made Islamic finance as part of their financial and business activities. Following the lead set by these centres, other major economies like Japan and France have also jumped on the wagon of the globally booming Islamic finance industry.
The legacy of trade and finance
At the apex of the great Islamic civilisation, trade was among the most important activity in wealth creation. The Islamic world dominated global trade through its control of land and naval channels from the East to the West. In order to support their trading activities, Muslim traders started the early development of Islamic finance when they engaged in activities such as interest-free deposit taking,
money changing, remittance services and the use of cheques. The usage of cheques for trade purposes was a norm in the city of Baghdad. The city of Basra flourished with the activities of money changers. Here, trading and business activities carried out in each market were conducted using cheques issued by money changers which were then used to purchase goods. Hence, Islamic civilisation which was characterised by innovation in financial and business transactions was also the catalyst which unified the different nations and cultures.
Today, Islamic finance involving financial flows between the
Muslim and non-Muslim world has revived and revitalised economic ties, a trend that will generate mutually reinforcing growth prospects. The emergence of Islamic financial centres in the East and West and their increased financial integration has paved the way for the revival of a vibrant Islamic civilisation in the twenty-first century. The phenomenal growth in Islamic finance has led to innovative Shari’a-compliant financial products and services. One of the most striking features of the recent growth in Islamic finance has been the development of sukuk as an investment vehicle and this has been consideredthe peak of innovation in Islamic finance. Over the years, the sukuk market has become more diversified with new categories of issuer and more complex structures being used. The Islamic
financial product range has now expanded into a broad array of innovative instruments. A number of innovative products have been introduced which include residential-backed securities, commodity-based financing as well as investment and equity-linked products. More recently, the international dimension of Islamic finance has gained prominence as it transitions from being domestic to becoming increasingly more internationalised. This is evident by the increasing international participation in Islamic financial markets in different jurisdictions and the growing number of Islamic financial institutions that have a presence or strategic interests in foreign jurisdictions. This trend has resulted in increased cross-border financial flows.
Islamic civilisation had many great achievements and accomplishments that have contributed to world culture. Today, Islamic finance as a new financial culture has emerged in many parts of the world now that Muslims have regained their political and economic independence. Islamic banking came as a market response to the needs of Muslims who were looking for Islamic financial solutions and services that not only fulfil their financial needs but also their religious obligation. However, it would be wrong to pigeonhole Islamic fi- nance as Muslim-only. The industry began to fulfil the needs of only Muslims but it can be safely said that Islamic finance is no longer just an all-Muslim affair.
Creating the new lifestyle
The industry’s appeal has grown to attract non-Muslim markets. We find that this new Islamic financial culture transcends religions and nations. Consumer interest is not merely driven by religious beliefs but stems from the transparency of the terms and conditions, the ethical nature of socially responsible investing, fairness to the consumer and competitive pricing. In many respects, Islamic banking and finance have
also emerged as an elitist phenomenon, especially in the Gulf region. The finance offered by Islamic banks is for a new and modern lifestyle. Luxury items like yachts, personal jets, expensive cars and high-end living are being financed by Islamic banks. Other financial products like Islamic credit cards, Shari’a compliant mortgages, takaful and similar services are giving rise to a new financial brand – an Islamic brand to which an increasing number of young Muslims are subscribing. In the past, an Islamic lifestyle was primarily associated with rituals – ‘ibadat – but this new brand associateIslam with other aspects of social interaction – mu’amalaat – as well.
At the apex of the great Islamic civilisation, trade was among the most important activity in wealth creation. The Islamic world dominated global trade through its control of land and naval channels from the East to the West.
This new Islamic financial lifestyle is developing a new identity for contemporary Muslims. A 21st-century Muslim wishes to be identified with the new trends in all aspects of life, including banking and finance. This trend as an individual choice offers an opportunity for the Islamic states as well. Given that economic power plays an important role in determining the contribution of a particular country or nation in world affairs, the global movement of Islamic banking and finance provides an opportunity to the OIC countries to develop a new financial civilisation based on an Islamic heritage in business and trade.
Malaysia has indeed found an opportunity in Islamic banking and finance to play a role in the peaceful restoration of Islamic ideals and its once vibrant culture. A pioneer in Islamic finance for more than 30 years, Malaysia has paved the way and designed the building blocks for the development of the global Islamic finance industry. Today, Malaysia’s contribution to Islamic finance has received global recognition. The key to their success lies in the development of the regulatory infrastructure encompassing liberalisation and incentivisation to promote the Islamic financial industry. Regulation has been passed on key structural components namely the Islamic banking sector, Islamic capital market, takaful and many other peripheral Islamic institutions. Malaysia is also at the forefront of disseminating Islamic finance education. Malaysia, as a multicultural nation, understood the pervasive influence of cultural and religious paradigms on modern life and proactively sought to enact a vision. This transformed the nation into a model for the revival of Islamic civilisation in the modern world.
The challenges today
The glory of Islamic civilisation emerged as a consequence of the enormous flow of ideas from Muslim thinkers. From these streams of ideas emerged Islamic philosophy which later became the handmaiden that developed Islamic sciences that included mathematics, physics, geology, chemistry, astronomy and sociology. This new knowledge continued to flow and enrich not only the Islamic world but also the entire human civilisation at that time. More importantly, every discovery added a newer, deeper and richer dimension to the Islamic world. It is disheartening to note that such a glorious era of knowledge promotion and advancement is very much lacking in the Muslim world today. I believe the singular reason for this state of affairs is the transformation of a people from processors of ideas to recyclers of ideas. On the moral and spiritual front we are trying to recycle the ideas of our forefathers and on the material front,
we are just consumers of Westernideas.
As we progress in this millennium, Islamic civilisation will be able to emulate some of its past successes highlighted earlier. We are already witnessing a gradual increase in the share of Islamic financial activities as a proportion of the global financial system. Increased wealth and assets placed and managed by Muslim financial professionals can be utilised through refinancing to reduce the debt burden of Islamic countries and enhance the prosperity of the ummah. Indeed Islamic finance has come a long way as a new financial culture and global civilisation. But the road ahead remains long. The Muslim world must learn to cooperate better and strive to unleash its potential by focusing on economic development and building stronger trade links. The promotion of economic integration through enhancing the breadth and depth of Islamic finance should remain the agenda of the day for Muslim nations.
