Obeid Ruff
Why The West Cannot Afford To Miss The Islamic Finance Movement
Obeid Ruff is an Attorney and Forensic Auditor at Najd Consultants. He is a member of the Washington, D.C. Chapter of the Association of Certified Fraud Examiners. Obeid worked as AVP for a Fortune 500 Financial Services company and was intimately involved in mitigating the 2008 global financial crisis in his capacity as Chief Analyst for urgent claims. Obeid is currently working to establish the United States Islamic Finance Council.
What is your take on the contemporary practices in Islamic banking and finance?
Exciting things are happening in numerous locations, but the industry right now needs to “fill the gaps and straighten the lines.” Contemporary practices in some locations means utilising Islamic finance to solve economic problems, such as Nigeria promoting riba-free banking and its government issuing a sukuk bond. In other locations groups like Yielders are utilising FinTech and product innovation to combine Islamic finance and technology to connect the economy with the community. Some jurisdictions are remaining conservative and not developing new products in order to avoid regulatory compliance headaches and the challenges of market penetration, so they focus on marketing existing products like Murabaha and Islamic mortgages. I think the one thing every practitioner and scholar agrees is that improvements can be made everywhere.
You mentioned Nigeria. Some critics opine that Islamic banking and finance is being used to Islamise the country, which is otherwise a multi-ethnic and multi-faith country. Do you think Islamic banking and finance has any [such] political agenda?
When I read these criticisms, which are raised in other jurisdictions as well, I listen and consider very carefully but I simply don’t hear any rational criticism. People don’t like the term “Islamic” and feel threatened with being “Islamised.” But do they know what that means, and how the products benefit them? Nigeria and similar developing economies have been crushed by riba-based debt, which has the effect of keeping them in debt forever. Nigeria borrowed US$5 billion in 1985, but paid back US$44 Billion in 2000 due to compounding interest. An Islamic bank could have utilised financing structures to develop infrastructure at a cost less than US$10 Billion. Are critics who don’t like the term Islam willing to hurt themselves and reject the benefits of ethical finance because it is Islamic? Are they likewise going to throw away the benefits of Islamic medicine and other Islamic innovation?
I read a very well-written criticism of Islamic finance a few years ago that I used several of its references to further develop my own networks, but the author’s conclusions were so disconnected from his own reasoning that it was very noticeable and laughable. And to top it off, the story ends even better when that same author was later caught fondling women and getting himself in big trouble. Perhaps he should have governed himself according to Islamic rules of modesty and kept his hands to himself, but I guess he was being logically consistent in his beliefs and rejected the Islamic morals and proceeded with the fondling.
And just as you are
intrigued, this is
what we need to
fight Islamophobia–
precedent .
In terms of a political agenda, not once have I been in a meeting or gathering where Islamic banking and finance was being discussed or used to Islamise anything. Instead, the conversations are about developing the most affordable and marketable products with the bank as the facilitator, and the customers benefiting including both Muslims and non Muslims. Let’s even assume that yes there is an agenda to Islamise global economics, what then would be the result and would people be happy with it? Instead of criticizing that word “Islam,” I would encourage Nigerian Christians to understand that they can remain Christian but should utilise banking that keeps money invested and circulating within their economy instead of flying away abroad due to riba. Just look at Brazil, which spends more than 40% of its revenue on interest payments! People need to wake up and realize that compounding interest grows faster than the ability of natural resources at our disposal to pay it off. Whatever you want to call it, Islamizing etc, we absolutely must stop utilizing interest-based financing.
Your answers open up new avenues for conversation. I hope you don’t mind me picking up on some of the points and structuring my further questions. You have referred to Islamophobia in your previous answer. Do you think it is a credible threat to growth and development of Islamic banking and finance in the Western countries where Muslims live in small minorities?
Yes, I think Islamophobia is a threat to growth and development of Islamic banking in Western countries. It won’t last forever, but it is a current barrier. Islamophobia happens at so many levels: government leaders who immediately criticise celebrities but who remain utterly silent when a mosque is burned to the ground, local zoning boards who will create any excuse they can to deny an Islamic Community Center, to racist individuals who spend every free minute on the internet connecting Islam with any conspiracy they can find.
The end result is that Trump won’t utilise sukuk although it is ideal for his public private partnership infrastructure plans, lawmakers will not provide legislation favorable to our industry’s growth out of fear of retaliation or rioting from their voters, and local banks are reluctant to use Islamic banking out of fear of picketing and boycotting. It is very sad, and America is going to be left behind isolated in its debt while other nations move forward.
That is a problem that you can’t tax your way out. I think the solution is patience, and finding precedents for westerners to be intrigued by, for instance: the London Olympic village utilised Islamic financing, and the expedition of Christopher Columbus that led to discovery of the new world was funded by a Mudaraba.
Christopher Columbus got Mudaraba finding! Is it true?
Yes, Columbus was the Mudarib with the contract drawn up giving him 10% of wealth he would bring back. There were numerous investors (rabb al mal) and not just Ferdinand and Isabel. My colleagues Ibrahim Warde and Abdulkader Thomas have researched and reported this as well. And just as you are intrigued, this is what we need to fight Islamophobia–precedent.
America’s discovery was funded utilising an Islamic Mudaraba. Along these same lines, i.e. emphasizing Islamic precedent, I published a paper showing how significant an influence the Qur’an was to President Thomas Jefferson.
Thomas Jefferson, John Adams, and Benjamin Franklin openly discussed a model government that would be successful if such a government could be inclusive of Muslims.
There is significant evidence in fact that Jefferson utilised parts of Muhammad’s pbuh Constitution of Medina when drafting the Declaration of Independence. And just like that, now even the most racist porch yeller has to stop and reconsider his or her position on Islam when gifted with the fact that two of America’s founding fathers were Muslim friendly. President Jefferson was the first to host an Iftar in the White House.
If he was comfortable offering this gesture, the current American President can do bigly better. Or covfefe.
While I am completely in agreement with you on your take on Islamophobia in the West, I am also inclined to accept the fact that financial products developed by Islamic financial institutions therein are also no better than [inferior] replica of their conventional counterparts. This hasn’t helped in winning clientele of even Muslims in the developed financial markets in the West. Am I a bit harsh in my thinking?
I think our entire industry is too harsh on itself and needs to focus more on market penetration, especially educating consumers including the bank officers marketing the products. A common criticism we hear is that Islamic finance is simply conventional finance called by a different name. Of course we are conventional finance, because we comply with global and local rules and regulations! We are not creating a separate and parallel and exclusive financial regime. Both practitioners and customers need to remember that Islamic finance is a niche sub-market within conventional finance, with our additional rules of Shari’a compliance.
If the GCC and Malaysia and other Muslim nations created a unified currency, perhaps then there could be a separate financial regime independent of conventional finance. Many of the problems in documentation come from existing requirements that Islamic finance must comply. For instance, disclosures for a Sukuk issuance are over 400 pages long. All the projects I am currently working on involve legal research of existing jurisdictional rules that are restricting true economic growth, but my clients must comply with these rules if products are going to be developed and expand to new markets. It isn’t just western nations whose existing rules are restrictive, but Muslim nations as well. I have been working on a very promising project in KSA that is tricky to navigate the rules, including its new VAT.
We have nothing to hide, there is no secret society or agenda to Islamise the globe through finance methods.
How a question about leadership in Islamic finance. Are you happy with the current breed of leaders running Islamic financial institutions around the world? What needs to be done to develop human resources commensurate with the needs of the industry?
I am happy with the current breed of leaders, but I think we are asking too much of them to solve the challenges of developing individuals to fill industry needs. This would be like asking Jamie Dimon to fix all the shortcomings of conventional retail banking. I mentioned before that our industry is at a stage of “filling the gaps and straightening the lines,” and to fill the talent gap we need collaborative support from government, academia, and professional associations. I think that the Malaysian model needs to be replicated: Government initiatives are created, Bank Negara Malaysia (BNM) coordinates and develops products and solutions, and both Government and BNM work with associated educational institution INCEIF to fund both students and research.
I am excited for the inception of International Islamic University of London, which will be positioned at the Islamic banking and finance hub of the Western world. It is very important that we create more mentoring opportunities, fellowships and internships, and professional assistance to help individuals develop the professional competencies that the industry needs. There are praiseworthy individuals and groups already playing a role, like Atif Khan and his team at Ethica Institute of Islamic Finance, and Australian Centre for Islamic Finance director Almir Colan who spends hours on a daily basis reading and policing and contributing to correspondence between industry professionals and who shares numerous resources and research at no charge.
There is certainly a gap between Shari’a scholarship and finance professionals, and leaders in my opinion need to establish a Waqf fund dedicated to recruiting and sending passionate finance students or professionals to obtain scholarly training. Some individuals in the industry are profiting off of the lack of qualified professionals and are making the rounds advising and approving structures in return for top dollar/dinar/pound/riyal/dirham etc. I ask these professionals to please start a Waqf fund to train their successors, and to share their knowledge and expertise. Segments of the industry are competing against each other when not fully developed, so we need to “straighten the lines” and standardise and collaborate.
You have recently attended Cambridge Islamic Finance Leadership Programme, held at Clare College, University of Cambridge.
How was your experience like and what were your important takeaways?
The Cambridge IFLP experience greatly exceeded my expectations, and narrowing down takeaways is hard. The most important takeaway is that the programme doesn’t end, but is a collaboration of professionals and a movement in which the programme delegates remain in contact and assist each other. I developed some very good friends who I correspond with almost daily. I went to Cambridge with one big question in my mind, and one personal advocacy task. My question was whether to promote Islamic finance as “Islamic” or instead as “ethical finance” for market penetration in the United States.
Based on numerous feedback from multiple jurisdictions, and from conversations I had in informal and open settings with industry leaders and pioneers, there is no question in my mind that the correct path forward is emphasising the Islamic aspect of Islamic banking and finance.
We have nothing to hide, there is no secret society or agenda to Islamise the globe through finance methods. Our industry has a lot to offer conventional finance and we need to jointly focus on sustainable development goals which align well with the Maqasid al Shari’a. Promoting reform and innovation within conventional finance is preferable to discarding conventional finance altogether.
My personal task was to further develop networks and find assistance to rebuild and invest in the Gaza Strip. I began studying the economics of Gaza 4 years ago, and see this territory as a place that can flourish if given the opportunity with the right finance structures. There is potential for a seaport funded by sukuk, and even a Palestinian currency utilizing exclusively mobile devices. I made several connections at Cambridge who are willing to work with me in the future on Gaza impact investing and assisting the entrepreneurial endeavors of highly educated and positive individuals there.
We all know that Cambridge the City and Cambridge University in particular attract talented and passionate individuals, and the Cambridge Islamic Finance Leadership Programme at Clare College, Cambridge University is a brilliant and significant addition to the Cambridge scene. Speaking about precedent and the garden grounds of Old Court, I’m not sure if the Cambridge elite are ready to know the meaning of the four squares- -it is a charbagh, an Islamic quadrilateral garden design based on the four gardens of Paradise mentioned in the Qur’an.
Personal history adds up to develop social history of an era. I am sure our readers will be intrigued by your life story. Very briefly, can you share with us your story of reversion to Islam?
I am grateful to Allah swt for bringing me to Islam, which was a process of key events in both my personal life and professional life. I can tell anyone with confidence that Allah was guiding me and providing things that I needed before I could even know what to ask for. I made the decision to learn Arabic and study Islam for the purpose of working for the U.S. Treasury or State Department, thinking that I could have a more stable career path working as an AML and anti-terrorist financing professional. I was AVP of a Fortune 500 financial services company and had spent three long years mitigating the global financial crisis that started in 2008. In that role, I detected and broke up a mortgage-fraud terror cell. It upset me that authorities were incompetent and seemingly unwilling to be proactive in this realm, so I decided to learn everything I could to stop “terrorist financing” and understand the motives of these individuals.
I discovered that Islam was not what I had been told it was, and delving into Islamic finance I was very impressed and saw that it certainly was not terrorist financing, had nothing to do with it, follows the same AML KYC rules as Islamic banks are part of the conventional global finance industry etc. I had some long nights and serious conversations about the beliefs I had held. The final catalyst was seeing a documentary on Al Jazeera about Muhammad A sad, formerly Leopold Weiss, a journalist and correspondent for a German newspaper who was living in the Middle East, from a German Jewish family. The documentary was a direct answer to my prayers, showing that if a German Jewish journalist was accepted as a Muslim and able to make contributions to Islam (author of Meaning of the Qur’an) and contributions
to Pakistan (he drafted some of its early foundational documents) and KSA (he was a friend to King Faisal and a spy for him on some key moments) then I could likewise be accepted as a Muslim in spite of my similar German ancestry.
I discovered that Islam was not what I had been told it was, and delving into Islamic finance I was very impressed…
Growing up on a farm, then becoming a lawyer, has helped me better understand structures like sukuk and how Islamic finance is connected to the real economy. So I went from studying Islam and Islamic finance with the intent to stop terrorists, to becoming a Muslim and an advocate of Islamic finance. Our industry has the ability to stabilise the global economy, and I see providing economic stability as the best method of preventing terrorism
It is interesting that you mentioned Muhammad Asad who I believe acquired Pakistani nationality after embracing Islam. Can you tell us more about him?
This question is actually very sensitive to my heart, and brings so many elements together. Muhammad Asad is called “Europe’s gift to Islam”. His translation and commentary of the Qur’an are used for dawa in the U.S. by the Council on American-Islamic Relations. His Jewish parents were murdered in a concentration camp, while he, an Austrian Muslim living in British India, was put in jail during World War 2 because of his nationality. Here is where it gets emotional for me: when Asad was in jail, his wife and children were cared for by Chaudhry Niaz Ali Khan, one of Pakistan’s founders. When I attended the Cambridge programme, I learned that I was sitting next to Kamran Sherwani of Pakistan, a well-respected Shari’a Head in Abu Dhabi.
One of Kamran’s heros and influencers is Chaudhry Khan, who is buried in Cambridge, and Kamran visited the grave on Pakistani Independence today while we were there. It is a small world where Kamran’s hero took care of the family of my hero and primary influencer, and both of us were able to meet in Cambridge. As I was processing my decision to revert, which turned my world upside down, I corresponded with Muhammad Asad’s son Talal who lives in New York City, who gave me very good advice and examples from his father that I have followed. Asad helped draft Pakistan’s first constitution, and his writings on Islamic statehood and governments need to be emphasized more in my opinion.
Great. Please be corrected that Choudhry Niaz Ali Khan and Choudhry Rahmat Ali (buried in Cambridge) are two different orked together for the founding of Pakistan. Yes, I absolutely believe that Islamic banking and finance can develop the economies of OIC countries. Looking at the disastrous debt of Puerto Rico is what we want to avoid outside banks and entities taking over ownership with the locals buried so much in debt that they themselves will never dig out without outside intervention. Several years ago, before I was Muslim, a bank president told me that if all the money in the world was redistributed evenly, that in a few years it would end up back in the hands that it is now. There is a lot of truth to this unfortunately, but I think it is because of the riba effect.
The consequences of interest financing is that those with money get more money, and those who have to borrow lose it to them. The structures within Islamic banking keep the money local, and the bank itself is a player in the game, not just a facilitator that offsets all risk to the borrowers. And where outside intervention is necessary or becomes necessary, Islamic banks should be considered first by OIC nations. Some of the recent organisational changes by the Islamic Development Bank are positive, in which it stated that its role is that of a development agency and less as a bank. It is decentralising to have a local focus. A common theme I hear as I travel is the need for a global central waqf to assist developing nations.
The Islamic attitude towards developing nations is truly a different mindset, where so many want to help through Qard Hasan and expect no immediate repayment. Compare this to how western nations and banks treated developing nations, where development occurred for the benefit of the outside lender nation, at the expense of the locals. Africa is an example, and in the United States West Virginia and other less developed states demonstrate this effect when outside corporations come in to mine local resources and labor (think coal mining) but the products and the wealth it generates is not staying local. Islamic finance, which has structures that encourage and reward investment activity, along with the ethical Islamic mindset, certainly is better for a developing economy than anything offered by a conventional loan or riba-based bond issuance that buys time but builds debt faster than any development activity to pay it off.
