In the June 2015 issue, we highlighted that there is an opportunity to properly groom today’s students in becoming investors and part of the workforce of the future Islamic finance industry. We have previously suggested that academics should be proactive and creative in implementing strategic initiatives to create interest in Islamic finance among students from various backgrounds. In this issue, we would like to share our further thoughts about how to ‘get there’ successfully. Of course, to get there successfully, efforts should be inspired by proper intentions, and the journey should be driven thoughtfully by a strong desire to affect positive changes in the financial system instead of solely pursuing immediate private gain or fame. In this regard, the sincerity and honesty of Islamic finance academics in disseminating the real state of the Islamic finance industry is important. Uncomfortable truths about Islamic finance as practised, if left unspoken, could result in students being misled, which might in turn deter efforts to improve the existing weaknesses of the industry. How can we improve the current situation if we do not first admit its existing weaknesses? One should not find it difficult to admit an uncomfortable truth if one can rationally accept the notion of continuous learning and improvement.
It has been acknowledged by both academics and practitioners that Islamic finance as practised today tends to replicate conventional finance practices (see, for example, the Financial Times, 2014). If this claim holds true, it implies that students need to be properly trained in the subject matter of conventional finance before they advance to learn about Islamic finance. Providing inadequate exposure to conventional finance might produce an army of students who are misled by a naive belief that today’s Islamic financial products necessarily offer customers unique and better experiences. This is especially worrying if the teaching staff choose to remain silent or not be critical about the current state of Islamic finance practices. Upon the completion of their studies, these naive students may continuously find it difficult to comprehend the similarities between conventional finance and Islamic finance as practised. Lack of exposure to conventional finance may result in this category of students claiming replicated features as genuine features of Islamic finance. How can we expect these students to be enlightened if they know very little about the conventional side of the story?
To address this issue, we suggest that academics link their classroom discussions of Islamic financial instruments to a ‘substance over form’ concept. Academics from accounting backgrounds will be able to link this concept to one of the intriguing issues associated with the practice of Islamic finance. For example, the economic reality of sukuk as practised today should not be omitted in the discussion of sukuk instruments. In such discussions, academics typically include the definition and description of sukuk’s legal structure. However, some academics may be reluctant to bring into the classroom a critical discussion that views sukuk as replications of straightforward debt financing.
In addition, equipping students with adequate exposure to conventional finance is crucial. Requiring students to first learn about conventional finance might cost them time during their undergraduate years, although an Islamic finance module could be offered as an elective at this level. Requiring them to gain an initial exposure to Islamic finance practices before learning the theoretical part of this branch of finance, though, could be set as a useful informal learning experience. It could also involve investment in time. Nevertheless, based on our own experiences, this learning strategy has resulted in better comprehension of the subject matter. In our case, our interest in and knowledge of Islamic finance were not developed instantly but over many years since the 1990s. A somewhat unpleasant experience in dealing with Islamic banks inspired us to further explore this alternative branch of finance. Years of investment in formal education and exposure to the Islamic finance industry helped us to observe and understand more clearly the similarities between conventional and Islamic finance.
Hence, we are more confident about telling the truth about Islamic finance as practised instead of spreading something that is ‘too good to be true’ to the market.
There is a clear obligation on every Muslim to speak the truth, and those teaching Islamic finance are no exception. This obligation is expressed clearly in the Quran: ‘And do not overlay the truth with falsehood, and do not knowingly suppress the truth’ (Al-Baqarah, 42). It is important that in our enthusiasm and, perhaps, rush to promote Islamic finance and banking, we should try our best to be more careful about not promoting facades. It is not just unethical, but a sinful strategy to conceal the truth, especially for the sake of a profit-making agenda that serves private interests. It is not so much about reputational risk being at stake, it is the fact that we are answerable and accountable for the things we preach in the life hereafter.
We would like to reflect on a recent experience at the Global Ethical Finance Forum 2015 held in Edinburgh. During one of the plenary sessions on ethical bonds, we raised a question on whether sukuk can be regarded as a risky investment instrument. We asked this question because we have observed the presence of a put option feature in typical sukuk issuance in practice. In responding to our question, one of the speakers had simply admitted that the economic reality of sukuk replicated conventional bonds. Unfortunately, this issue did not receive a thorough discussion, either during this event or at other similar events. Where are the ethical or Islamic values if the ethical or the Islamic finance industry goes hand-in-hand with facade? Is it not sensible to invest more time in this critical discourse first before selling the ‘brand’ to the market? There may have been an ‘impatience to sell’ in the Islamic finance industry, which is unfortunate for what is supposed to be an ethical industry.
Talking about ‘impatience to sell,’ let us relate this observation to an uncomfortable truth about the behaviour of some Islamic finance academics. There is always a temptation among academics, either consciously or unconsciously, to engage in the business of selling ideas solely for personal gain or fame instead of selling the right ideas that can benefit society. Islamic finance academics are no exception. In selling ideas through publications, academics may display a greater tendency to be influenced by ideas that are more consistent with government policies or the demand created by a market dominated by the few, who are generally susceptible to mainly private agendas.
If the fate of their careers is somehow linked to the profit-making agenda of the industry, it is not surprising to observe the emergence of an army of academics who are perhaps helpless and incapable of being critical about the current state of the Islamic finance industry. In this situation, critical ideas tend to be downplayed and often fail to attract the funding that could bring critical thoughts into mainstream literature. If this unfortunate trend continues, what we may have at the end of the day is perhaps an Islamic finance fairy-tale that claims to protect the interests of the many but, in actuality, fails to free itself from the interests of the few.
Over the past few years, there has been tremendous growth in research and published studies on Islamic banking and finance, which have been replicative and descriptive instead of critical in nature. This, undeniably, has been mainly fuelled by the competition to publish for promotion. Those with easy access to funding through ‘knowing-who’ networks can immediately steal promising ideas. While this emerging field of research can provide academics working in this field with a promising route to promotion, a more important agenda is to promote a ‘genuine Islamic finance’ in the market. Although a shorter route for advancing one’s promotion to professorship is preferable for many, we wonder whether this is necessarily an ultimate achievement, especially if it is achieved through the ‘knowing-who’ network instead of ‘knowing-what’ criteria. Academics in this field are supposed to busy themselves with genuine learning activities (through research and teaching) to benefit the many, without being restricted by the interests of the few in their network circles. Islamic finance academics need wisdom to flourish in the right direction!
Life is supposed to be a continuous learning process. Critical thoughts and ideas can take years to take shape, get accepted and get published. If this genuine effort is discouraged by a flawed promotion system that tends to promote an ‘impatience to sell’, the market will produce a bunch of professors who claim to engage in research and the teaching of Islamic finance, but who are incapable of inspiring students to identify weaknesses in the current state of the Islamic finance industry, not to mention to improve it. Is there a point in having too many professors in the market if the gap between the rich and the poor is ever widening? Where is the role of Islamic finance in reducing the rich-poor gap? Is Islamic finance only about inducing big conventional capital markets, such as London and Hong Kong, to issue sukuk in order to help sophisticated investors to become richer? If one offers as an excuse that Islamic finance is still at its infancy stage of development, we would argue that this is the right stage to get it driven by the right motives and incentives.
In a recent conversation at an Islamic finance class in Hong Kong, a financial planner who was one of the attendees reckoned that HK investors would invest in Islamic securities only if these securities could yield returns higher than those of conventional securities. That may explain why the First Islamic Fund launched in Hong Kong last year aimed to achieve a ten per cent return (The HK Standard, 2014). Offering a higher return seems to be the only pragmatic strategy to date for the Islamic finance industry to gain greater market share.
However, it can be inferred from the maqasid al-Shari’a that the real Islamic finance agenda should be more noble than achieving higher returns for investors. This should pose a great challenge to Islamic finance academics and practitioners to think harder and invest more time in devising a more appropriate strategy to help the Islamic finance industry to grow in the right way. We believe that providing the Islamic finance industry with the right foundation would produce a sustainable financial system, because this strategy is supposedly about doing the right thing. The conventional financial system is not sustainable because it keeps doing the wrong thing, such as fuelling excessive exposure to credit risk and allowing speculative activities to yield the highest returns possible.
The key message in this article is: it is not about how fast one has got here; it is how much one has learned over the given years. Today’s students, who are the future Islamic finance experts, deserve to be trained properly by allowing them adequate time as well as adequate opportunities to learn about the reality of Islamic finance. It is important to allow them to be critical about whether every Islamic finance slogan they are fed is really implemented in practice. Let us encourage them to challenge their professors with thought-provoking arguments and interesting ideas, instead of indoctrinating them with flawed, well-accepted norms or established paradigms. Established practitioners, researchers and professors are not divine beings; their thoughts are to be challenged because one’s knowledge is never complete. Let the students’ thoughts prosper and flourish beyond private agendas to help us improve the current state of the global financial system. There should be no rush to end this learning process, because life is about a pleasurable engagement in continuous learning, not a short-term rat-race of ‘how fast one can get there’. Being the first there does not guarantee that you have done the right thing. Should Islamic finance embrace capitalism’s slogan of ‘the survival of the fittest’? If it should, what do we do with the unfit – lend them support or eliminate them from the system?
