Islamic Finance To Be Re-defined
DIRECTOR-GENERAL CAMBRIDGE INSTITUTE OF ISLAMIC FINANCE
There is a need to remould the edifice of Islamic banking and finance by relaying its foundations. This may very well involve a change in the very nomenclature that differentiates it from interest-based banking and finance.
The fundamental principle on which the whole foundation of Islamic banking and finance – or whatever name we may give to it – should be erected is the prohibition of unjustifiable enrichment1. There are four important pillars of this prohibition:
Prohibition of money lending for a gain;
Coercive contracts;
Unhealthy speculation; and
Deception, fraud and outright stealing.
Another important guiding principle of Islamic banking and finance is the promotion of equitable distribution of wealth.
The ongoing pandemic must allow us to re-evaluate the value proposition of Islamic banking and finance to develop products that do not allow the stronger party to a financial transaction to maximise rent-seeking at the expense of the weaker party. Also, the use of Islamic social finance must allow Islamic banks and other financial institutions to contribute to shared prosperity rather than accentuating income and wealth inequalities.
For this to be achieved, a new animal must be born rather than taming the beast that has already got acclimatised to the vast wild jungle of financial markets. If this is too radical a suggestion then the beast must be captured and kept in a zoo or a rehabilitation centre for quite some time to undo what it has fast learnt from its conventional counterparts. This is only possible if all the stakeholders in Islamic banking and finance have developed a consensus in this respect. One must not be blamed if they do not deem it a plausibility.
A new model of Islamic banking and finance must be:
Free from the profit motive;
Based on interest-free loans;
Fee-oriented rather than interested in earning income from a return similar to interest;
People-centric and not based on conventional wisdom behind the market economy; and above all
A system based on charity, philanthropy and donations, away from the deposit-centric banking system.
If the above is not possible now in the wake of COVID-19, one should not hope for this to happen any time in the future!
