At first glance, the interest in Islamic finance seems growing at an impressive scale. The statistics reported in the media and academic literature are encouraging. For example, between 2006 and 2011, total assets of Shari’a-compliant financial institutions had doubled to US$900 billion (Financial Times, 2011). Further, the Islamic finance industry has expanded to reach US$1.984 trillion in assets by the end of 2014, as London pushes for an increased share of the global Islamic finance market (Global Islamic Finance Report 2015).
However, one can still be critical about the extent of real interest gained, especially from non-Islamic countries. For example, the scaling back of HSBC Amanah’s operation in countries such as the United Kingdom poses a question on the extent of British real interest in Islamic finance. One may argue that the market for Islamic finance in Britain perhaps is too competitive for HSBC due to the presence of a large Islamic bank such as Al Rayan Bank (previously known as Islamic Bank of Britain). However, this argument does not seem to add up when HSBC manages to uphold its Islamic banking operations in Malaysia market, which has many Islamic finance players it had to compete with. Reflecting on such anecdotal evidence, it seems that the demand for retail Islamic financial products from non-Islamic countries, such as Britain, is still far from adequate to rationalise big banks’ venture into this field.
In terms of corporate financing, we observed relatively low penetration of Islamic financing in corporate firms’ capital structure mix (Dzolkarnaini and Minhat, 2012). Our preliminary analysis was based on Islamic financial instruments used by non-financial firms from sixteen Islamic countries during 2005-2009. The countries considered were Bahrain, Bangladesh, Egypt, Indonesia, Iran, Jordan, Kuwait, Lebanon, Malaysia, Mauritania, Pakistan, Qatar, Saudi Arabia, Tunisia, United Arab Emirates and Palestine. Contrary to various bold claims of tremendous growth of Islamic finance over the time, we found that not all top twenty companies in each sample country have considered Islamic financing to finance their investment activities. This poses a concern on the sustainability of Islamic finance growth.
We strongly believe that creating awareness about and effective exposure to Islamic finance is crucial to sustain the development of Islamic finance industry, or to turn the optimistic forecasts about its growth into reality. In this respect, the role of Islamic finance academics is key to success. The academics have to be proactive and creative in implementing strategic initiatives to create interest in Islamic finance among students from various backgrounds. There is an opportunity to properly groom today’s students to become investors and workforce of future Islamic finance industry. To get there successfully, effort should be inspired by a proper intention and the journey should be driven mainly by a strong desire to effect positive changes in the financial system, instead of solely pursuing personal gain or fame. This notion is consistent with the following hadith: On the authority of Omar bin Al-Khattab, who said that he heard from the Prophet (pbuh) “Actions are but by intention and every man shall have but that which he intended” (Related by Bukhari and Muslim). This implies that effort will only bear fruit if there is sincerity attached to one’s intention and would be worthless if the motive is otherwise. In this article, we would like to share some strategic initiatives that we have worked on over the past few years in our effort to promote Islamic finance through higher educational institutions. Our strategy in teaching Islamic finance has been principally based on comparative approach. Our formal training and experience in both conventional and Islamic finance are important assets that we have capitalised in illustrating to students the distinguishable aspects of Islamic finance.
Our interest and knowledge in Islamic finance were not developed instantly, but over many years. Since late 1990s, Islamic finance was a buzzword given the active involvement of Malaysia government in inducing corporate firms to embrace Islamic financing. For example, the government-linked company that we worked for prior to 2003 had issued sukuk through a subsidiary established as a Labuan offshore company. This event sets our first exposure to Islamic corporate financing. In addition, our involvement in Malaysia property market and insurance industry had expose us to the presence of various mortgages and insurance products including Islamic financial products offered in the financial market during those days. We were amazed with the diversity of interest rates and the complexity of some financial contracts. We were also mesmerised by the higher cost of Islamic financing in comparison to the cost of conventional financing in some cases. Our then experience as financial planners had only exposed us to the marketing aspect of the financial industry and did not provide much opportunity for a critical discourse on fundamental issues. It was an inquisitive mind that has inspired our interest to pursue postgraduate studies in finance and banking, while keeping in mind the importance of pursuing Islamic finance knowledge.
In pursuing Islamic finance knowledge, we have participated in a number of Islamic finance programmes at various places, from London to the Middle East to Kuala Lumpur, over the past few years. This includes the Islamic Finance Summer School at Durham in 2008, events or talks organised by the Institute of Islamic Banking and Insurance (IIBI) and the Annual ISRA/IIBI Thematic Workshops in London. It was inspiring to have met a number of individuals who were seemingly greeted as Islamic finance experts and practitioners, yet they are still very much learning about this growing field.
Unfortunately, for Islamic finance events, we are yet to be impressed at the extent of interest shown by non-Muslims. The majority of audiences were normally from Muslim background. Similarly, from our observations, research papers on Islamic finance did not normally attract wide audience at mainstream finance conferences. The real issue here is that, we have not yet achieved an impressive level of interest that can match the impressive growth rate forecasted for Islamic finance industry.
Therefore, we believe there is a real need to devise strategic initiatives to attract more non-Muslims to learn what Islamic finance has to offer, especially in terms of improving the current state of financial system. This issue poses a real challenge for academics who are involved in teaching and research about Islamic finance.
At Salford Business School, the postgraduate Islamic Finance Programme was launched in 2008. The programme was initiated by Dr Dzolkarnaini. The experience of developing an effective programme was viewed as a more important agenda than getting a formal recognition for such effort. In this programme, students were encouraged to ponder on their personal experience in aspiring critical thoughts instead of accepting the contents of Islamic finance books at face value. It is very important to encourage them to reflect on the reality of Islamic finance practices instead of being bogged down with the theories and authoritative sources used to permit certain transactions. Potential moral hazard as a plausible factor influencing the judgements of Islamic scholars was always highlighted.
This is a pragmatic approach to take on board given that the development of Islamic finance is somehow restricted to capitalism’s “rules of the game”. It is observed that students generally appreciate an open discussion of this sort, whereby they were neither restricted from exercising their freedom of thought nor voicing them out. This is an advantage offered at Salford’s Islamic Finance Programme, which may not be experienced by students at some other institutional contexts that tend to restrict critical thinking among students due to cultural or political factors.
In terms of coursework activities, students were also expected to collect real data from real providers of Islamic financial products. This approach is aimed to expose each student to a real Islamic financial product with the opportunity to be critical about it. At the basic level, the key to an acceptable Islamic transaction is that it should entail a fair transaction, which is free from manipulative behaviours and excessive speculations of various sorts, of which may exist in the form of riba and gharar. The counterparties to a transaction are to be treated fairly. Students were also given opportunities to conduct empirical finance research as part of the coursework. Although the outcome is only a short version of a research paper, the important development of critical thoughts and skills during the process is what actually counts!
At Edinburgh Napier University, the experience of teaching Islamic finance could not be more interesting, especially the attendees were mostly non-Muslim students. Instead of offering a full-fledged Islamic finance module, the Islamic finance topic was introduced as part of conventional finance modules. This strategy, which was initiated by Dr Minhat, has provided opportunities to create awareness and expose non-Muslim students to the values and potentials of Islamic finance. The trend has been that students were generally more active asking questions during Islamic finance lectures as compared to lectures on conventional finance topics. Interestingly, the lecture on Islamic finance did not merely introduce basic Islamic financial instruments but also getting students to be critical on the differences between Islamic finance and conventional financial practices. The point made to students is that, ensuring a fair transaction is far more important than labelling or branding a transaction as “Islamic”. Some students even better aspired by undertaking dissertation on Islamic finance topics and wished to pursue their career in this field. The lecture was normally ended by challenging students to invest their creativity in inventing financial products that promote fairness, instead of conventional derivatives that can inject further instability to the financial system. Since Islamic finance industry is in short of experts in financial engineering, perhaps it is a good idea to capitalise the moments with students by inspiring them to fill such gaps.
The strategic initiatives implemented at Edinburgh Napier University were also exported to Hong Kong. Islamic finance was largely unknown in Hong Kong when it was first taught there in 2009. It took only a few years to see Hong Kong government’s early involvement in Islamic finance. In 2013, the Inland Revenue and Stamp Duty Legislation (Alternative Bond Schemes) (Amendment) Ordinance 2013 was gazetted in the country to allow fair tax treatment for Islamic securities as a measure to facilitate the growth of Islamic capital market, which can reinforce Hong Kong’s position as a leading international financial centre. It is also interesting to learn about the first Islamic fund launched in Hong Kong last year, which aimed to offer 10% return to investors (The HK Standard, 2014). These recent developments seem to grow systematically hand-in-hand with the effort of educating Hong Kong students about the relevance of Islamic finance. Such developments also made it convenient for students to gather materials and produce essays about the development of Islamic capital market in Hong Kong, as part of their coursework activities. Soon, we may observe growing scholastic works on Islamic finance from this part of the world.
There is, of course, potential for Islamic finance to be as good as a profitable brand, which can be capitalised for private gains, if not fame. However, as academics in finance, our important agenda should be to promote a better and fairer financial system. Pursuing this social agenda strategically is perhaps more important than blindly profiting from a specific brand if we aim to capture big interest from the public at large.
