To The Islamic Banking And Finance Global Financial Services Industry?
Every new social, political and economic phenomenon takes about 20 years to get established. It takes another 30 years to either achieve excellence or go into oblivion. The next 30 years see its complete dominance if it has already survived in the preceding years. Citing the Russian Revolution and emergence of the USSR in 1918-20, within 20 years the socialist regime had direct or indirect control over territories in Asia and Europe. Within 50 years of its origin, it became a well-established governance system that has survived to date, albeit with major changes and modifications. A more recent example is that of the IT1 Revolution which has its origins in the 1940s. Although it impacted businesses in the 1970s, a full-blown impact to businesses and households only occurred in the 1990s. Today, it has changed the whole spectrum of human lifestyle.
Since Islamic banking and finance (IBF) is just over 40 years old, it is left with another 10 years to achieve excellence in the financial services markets. The 30 years from 2025 will determine whether it can make any meaningful impact on the global financial services industry and the national financial services markets where it has achieved critical mass. An optimistic view on IBF would lead to a distinct Islamic financial lifestyle that has yet to emerge.
In the first 20 years (1975-95), we saw the emergence of Dubai Islamic Bank, Kuwait Finance House, Al Baraka Bank, Bank Islam Malaysia Berhad and the likes, which continue to play important roles in the industry. Interestingly, the largest Muslim countries such as Pakistan, Indonesia and Turkey hardly featured in the first 20 years of IBF.
During the next 20 years (1996-2015), IBF gathered momentum and the industry grew significantly but not sufficiently to make a real mark on the global financial services industry. It attracted almost all the big players in financial services (making it an inclusive phenomenon) but nearly all of them retrieved and cut down their involvement in IBF gradually and in some cases abruptly. Consequently, IBF is emerging as a pan-Islamic movement, with decreasing involvement of Western conventional financial institutions. Impressed by this, some of the industry pundits are blowing the trumpet on the need for IBF to be more inclusive by changing even its nomenclature to attract more participation from non-Muslims and conventional financial institutions.
Suggestions of changing the nomenclature, however, is at best naïve if not completely ill-conceived. The Islamic financial services industry must come up with a collective strategy to grow with a global impact, rather than just changing names here and there.
The scope of advocacy platforms for IBF must also be enhanced to ensure that major global players like the World Bank, International Monetary Fund (IMF), the Organisation of Islamic Cooperation (OIC) and similar multilateral organisations are engaged in a policy of debate in a meaningful way. It must be acknowledged that all the above organisations have been involved in IBF in different capacities. For example, the World Bank set up a Global Islamic Finance Development Centre in Istanbul in 2013. The IMF has also attempted to remain engaged with Islamic finance, and in this respect it has constituted an External Advisory Group comprising heads of industry-level organisations like AAOIFI and IFSB and some others.
All these are important developments but not significant enough for someone to claim that IBF has developed with an impact. Next 10 years, therefore, will determine whether it emerges as a force to be reckoned with just or another fading phenomenon.
Mainstream relevance of IBF with weaker Shari’a spirit and Islamic identity will certainly be a failure. IBF must attempt to enhance its role by further strengthening its Islamic identity and by bringing Shari’a to the forefront of its business instead of attempting to make Islamic banks look like conventional banks and asking Shari’a scholars to sit on back benches.
I am hesitant to accept that IBF has perhaps already missed the train and that Muslims will lose another great opportunity for the revival of the Islamic renaissance. Political Islam (or what some people would rather more adequately like to call political Islamic movements) has already failed to achieve its objectives in the last century or so. If Muslims do not assume full control of leadership of IBF, they face danger of letting it fade into oblivion. Worse, if IBF continues to prosper but ends up as a younger sister of conventional banking and finance.
If IBF wishes to remain relevant to the needs of Muslims around the world, it must develop a framework with clear targets. By some estimates, there are no more than 100 million Muslims out of the 2 billion population that are presently being served in one way or the other by Islamic financial institutions – merely 5% of the global Muslim population. The remaining 95% Muslims are either not interested or are not being offered Islamic financial services.
For IBF to create an impact, it must target 5 countries with Muslim populations of 100 million or more in the next 10 years. This is what I would like to call a 5x10x100 strategy for growth of IBF with an impact. It is not difficult to guess which countries I am referring to!
