Professor Kabir Hassan Winner Of The IDB Prize In Islamic Banking & Finance 2016
Winning the IDB Prize in Islamic Banking & Finance 2016 is a huge achievement; more so for you as you happen to be the youngest IDB prize winner in the history of the Prize. Did you plan for it? If yes, when did it occur to you that you could win this auspicious Prize?
Kabir Hassan: The IDB Prize news was brought to me through a text message while I was attending an Islamic finance conference at Bogazci University, Turkey. I was definitely ecstatic! I did not plan for it and it did not occur to me that I would win this prize. It has been an amazing experience. I would like to thank Almighty Allah for bestowing upon me this great honor, and to my coauthors who I worked with on books and papers over the last twenty years. I also want to thank my family for supporting me through everything.
Bangladesh, your country of origin, is a fertile land for scholarship. Tell us about your family and the history of scholarship in the wider family.
Kabir Hassan: Education is very important and is a focus for myself as well as my family. I left Bangladesh in January 1983, after completing HSC from Comilla Victoria College in 1980, then I studied for one-year in Dhaka Medical College and oneyear in Economics Department in Dhaka University. I received my BA in Economics and Mathematics from Gustavus Adolphus College, Minnesota in 1985, then moved to University of Nebraska-Lincoln, Nebraska, where I earned a MA in Economics in 1987 and PhD in Finance in 1990.
My wife received her Medical degree from Dhaka Medical College in Bangladesh and then did her MD and residency and fellowship training in Internal Medicine and Geriatrics Medicine in the USA. Currently, she is the attending physician and medical director of nursing home of Our Lady of the Lake Medical Center, the largest health care facility in the state of Louisiana.
We have been blessed with one daughter and a son. Our daughter Aniqa Hassan graduated from Harvard with a BA in Neurobiology and World Health in May 2016. Our son Arman Hassan, now a Junior also at Harvard, is majoring in Economics and Computer Science.
We have a large PhD programme in Financial Economics at the University of New Orleans. My enthusiasm for scholarship attracts many of our PhD students to work on their dissertation under my supervision. I really see my doctoral students grow and blossom under my care. I also encourage my students to challenge themselves as academic scholars, by conducting both academic and industry research.
As in the Indian sub-continent, education is valued highly by the society. The government of Bangladesh pays special emphasis on all three levels of education – primary, secondary and university. We have a few high quality universities in Bangladesh, which rank well in Asia. But more can be done by injecting more research money into higher education in Bangladesh.
In Bangladesh, Islamic banking industry is about 20% of the entire banking industry, yet it does not have any Islamic banking law. The government can facilitate the growth, like in Malaysia, by enacting an Islamic banking law for proper and balanced growth of Islamic banking in Bangladesh. The private sector can establish banking chairs in universities to encourage scholarship in Islamic banking and finance. The media has an important role too. They can broadcast the principles of Islamic jurisprudence and banking and finance principles to the public for creating awareness about the positive aspects of Islamic finance and how it can promote equitable growth in Bangladesh.
Bank efficiency and related areas have obviously been a focus of your research. Given this, you are one of the very few Islamic economists who have applied quantitative techniques to bring credible empirical analyses to Islamic economics, banking and finance. Now that you are an IDB Laureate, do you have plans to widen your research focus and look into philosophical foundations of Islamic economics?
Kabir Hassan: I am not a theologian. I am a financial economist, an empiricist. So I am more interested in empirical Islamic finance and banking. Islamic economics is not a theology, it is a social science. I try to answer whether and how Islamic finance helps economic growth, whether Islamic finance is more or less efficient than western finance, and whether interest or debt creates inequity in the economy. My empiric are guided by a moral code to see if and how the Islamic tenets work for the good of humanity.
My empiric are guided by a moral code to see if and how the Islamic tenets work for the good of humanity.
The need for empirical tests of the effectiveness of the Islamic finance and economic model is growing on a global scope. This model provides guidelines of how economic transactions should be done, from an economic, ethical, and religious perspective. The objective of Islamic economic transactions is to promote growth, which is similar to conventional models. These transactions also need to adhere to religious and ethical standards. In Islam, economic transactions should benefit society as a whole. It is vital for research to determine if the Islamic economic system fosters economic growth and prosperity or inhibits it. Empirical tests can provide additional context and application to this debate.
Islam is a norm-based lifestyle that emphasizes spiritual fulfilment while conventional economics is chiefly a secular discipline that endorses a divide between the positive and normative.
Up to the 1990s, there was a lot of enthusiasm around Islamic economics as an emerging academic discipline. The interest in Islamic economics has since then gradually receded. What are its main reasons? As a (relatively) young Islamic economists, what would you suggest to reinvigorate interest in Islamic economics?
Kabir Hassan: Employment opportunities are needed in order to incentivise young scholars to study Islamic economics and finance. A programme is needed, that can create an appropriate balance of theory and practice, which will attract young scholars to a career in Islamic finance and economics. PhD curricula should be updated and include a mix of theory, data analysis, and industry application. This should be considered in PhD programmes in both Muslim and non-Muslim countries. Focused coursework, research grants, and academic conferences that specialise in Islamic economics will help foster interest in young scholars and will bring the field of Islamic economics into the future.
Islam encourages economic activity, production, trade, and free markets. It allows for an analysis of the behaviour of market participants, acknowledging that this behaviour may be motivated by monetary gain. Islam differs from conventional economics by asking whether this behaviour should be legitimized and raised to a level of importance above that of all other types of human behaviour. For Muslims, economic activities must have legitimate moral underpinnings. The market is still considered to be very important, but Islam aims to reform the traditional concept of the market by building it upon ethical behaviour on the part of individuals and institutions.
Sorry if we have asked you questions about Islamic economics and not Islamic banking and finance for which you have been honoured. Based on your works in efficiency of Islamic banking, can you please share with us if indeed Islamic banks are really more efficient than conventional banks. Many industry observers would opine that there is nothing inherent in the practice of Islamic banking and finance, which will make it more efficient than its conventional counterparts. Would you agree?
Kabir Hassan: Yes, in many ways the current practices of Islamic banking are very similar to the Western banking system. But these practices are not illegal from Islamic Shari’a perspectives. Here we are again in the debate on “form versus substance”, a kind of micro vs macro analysis of the interest-free banking system. In form, Islamic banking practices are legal, but in substance, they are very similar to conventional banking operations. And it will be like this because the Western banking model is not suitable for the actualisation of Islamic finance. Islamic finance is not ONLY about banking as we see in many countries. Banking is by its very nature is short-term, whether it be Islamic or Western. Islamic finance contains banking, capital markets, insurance, social finance, zakat, waqf and charitable sectors. Islamic finance is about sharing risk, not transferring between debtors and creditors. We need to establish nonbanking financial institutions to bring forth the essence of Islamic finance, which is not possible solely through Islamic banking operations. Despite this fact, even Islamic banking operations are asset-based lending, so this deters excessive debt creation, which does not help economic growth in the long run.
There is a growing divide between academicians and Shari’a scholars. What is your take on this?
Kabir Hassan: The tension between academicians and Shari’a scholars is the result of the different academic training they both receive. The current generation of Islamic banking scholars has been brought up in the modern practices of banking and finance, whereas Shari’a scholars have been brought up in the religious traditions. This leads to a divide where none should be. My hope is that we can bridge this divide by creating an academic curriculum that includes elements of modern banking and finance as well as Shari’a. Both approaches have unique aspects that should complement each other. Shari’a scholars tend to think legalistically, like judges do, while academic scholars tend to think economically. We need to connect micro and macro maqasid and reach an optimal balance between the two approaches. If both groups work side by side to advance research in the field of Islamic banking and finance, the industry as a whole will be strengthened.
Of course, Shari’a Boards receive unfair criticism nowadays. There are reports that some scholars sit on multiple boards.
We need to connect micro and macro maqasid and reach an optimal balance between the two approaches.
around the world, to the detriment of effective supervision. Excessive fatwa shopping is a problem that can be remedied only by legal restrictions that are established by a centralised and transparent Shari’a governance framework for every jurisdiction on a global scale. If left to their own devices, Islamic financial institutions may wind up abusing local laws and manipulating the market as well as the consumers of Islamic finance products. Here we see the necessity of appropriate and effective regulation of the Shari’a advisory process. The standard-setting organisations already in existence, such as AAOIFI and IFSB, have been looking at best practices that could potentially be adapted to meet the particular needs of individual jurisdictions, especially with regard to Shari’a governance.
You belong to the third generation of Islamic economists. Who amongst the first and the second generation has impressed you?
Kabir Hassan: Well, there have been many. In high school I read a book by Abdul Mannan, a fellow Bangladeshi, which piqued my interest in the subject matter. Later I studied at length the writings of Syed Abul Ala Maududi, Imam Baqir Al-Sadr, Nejatullah Siddiqui, Umar Chapra, Mozer Kahf, Anas Zarqa, Sabahattin Zaim, Justice Taqi Usmani and Abbas Mirakhor, our first generation, the founding fathers of Islamic economics. Among the second generation, I was influenced by Munawar Iqbal, Fahim Khan, Abdul Azim Islahi, Asad Zaman, Zubair Hasan, Seif el-Din Tag El-din, Masudul Alam Choudhury, Mohammad Ali Al-Qari, Rifaat Abdul Karim, Murat Cizakca, Abdul Rahman Yousri, Yousef Abdullah Qradwai, and Muhammad Akram Khan. Among the new generation of scholars, I would like to mention Sami Al-Suwailem, Mehmet Asutay, Habib Ahmed, Tariqullah Khan and Zamir Iqbal. Three western scholars, Mervyn Lewis, Volker Nienhaus and Rodney Wilson, have also had an enduring impact on my current thinking about the field of Islamic economics and potential paths for its future development. Among industry players and policymakers, I must include Ahmed Mohamed Ali, Saleh Abdullah Kamel, Zeti Akhtar, Jaseem Ahmad, Yahiya Abdulrahman, Humayon Dar, Sayd Farooq, Rushdi Siddiqui, Monem Salam, Iqbal Khan, Daud Bakr, Rafe Haneef, among many others. And finally, of course I always learn from my coauthors who bring fresh perspectives to me.
You are the first empiricist who has been honoured with an IDB Prize. What is your view on theoreticians’ works in the field?
Kabir Hassan: Currently, we do not have much of a theory of Islamic economics, at least when compared to Western economic theory building. What we have is a political economy version of Islamic economics. To their credit, some scholars are trying to develop a mathematical theory of Islamic banking and finance, but I find these attempts lacking. As they attempt to apply Islamic concepts of banking and finance to the mathematical models of Samuelson and new classical tradition, they fail to give proper weight to matters relating to Shari’a. That said, I do not presume to know how to determine the best way forward. Masudul Alam Chowhudury and Asad Zaman put forth a radical approach that presents a clean break from new classical tradition. I am sympathetic to this view because we need more scholars with the necessary training in this area to build the proper models. Unlike almost every other field, Islamic economics started with practice (such as Islamic banking) and is only now getting around to the work of building theories. To do this correctly, we must draw proper guidelines from the Quran and Hadith to attract serious scholars, Muslim and non-Muslim alike, to the cause of Islamic economics. Another factor to consider is that the pressure to publish in rated journals is driving many younger economists to do theory in conventional ways or to fit data in esoteric econometric models, rather than working on building theories of Islamic economics.
Islamic economics seeks to analyse, interpret, and solve economic problems according to Islamic principles. It supplements conventional economics by examining the religious and moral facets of economic activity. Islam is a norm-based lifestyle that emphasizes spiritual fulfilment while conventional economics is chiefly a secular discipline that endorses a divide between the positive and normative. The trend in conventional economics has been to eliminate values and ethical theory by reducing economic agents to mere collections of preferences that react to fluctuations in the costs and benefits of resources. Islam, however, has a completely different take on what makes humanity tick. Islam considers human beings as servants and vice-regents of God on earth, adapting their behaviour to bring it in line with the dictates of Shari’a. It is from this perspective that Islam puts great stress on keeping one eye on the material and another on the spiritual.
Do you think that winning an IDB Prize would help you in introducing new courses at the University of New Orleans?
Kabir Hassan: Research studies on Islamic finance are being continuously conducted by University of New Orleans’s Financial Economics PhD students. I would like to add this as well as existing academic research literature into new course offerings and training workshops that focus on Islamic finance. In 2014, I partnered with the Franco-American Alliance for Islamic Finance in providing an Introduction to Islamic Finance workshop and certification for finance industry professionals and academics at the University of New Orleans. Continuing these types of workshops and training programmes as well as creating new Islamic finance courses will help cultivate human capital to be able to effectively manage the promotion, operations, and supervision of the industry. This is needed in order to further grow Islamic finance institutions.
There are more than 5,000 universities in the United States, and yet not a single academic degree programme in Islamic economics exists in any of them. I think that international Islamic organisations can and should play an important role in bringing more conferences and research symposia to the US to attract and educate new scholars in the discipline of Islamic economics. For example, IRTI holds workshops and seminars in Muslim and European countries, but I have never heard of them holding such events in the US Holding such events here would be a good start. There is too much intellectual capital in the US to leave it untapped. Finding effective ways of harnessing this intellectual capital is absolutely crucial to the growth of Islamic economics and banking.
How do you see Islamic banking and finance shape up in the western countries such as the US in the coming years?
Kabir Hassan: Islamic finance is a growing industry and there is a growing interest in Islamic financial products and services in Western countries, including the United States. Secular investors are increasingly looking for means of investing in firms that are ethically-based. Of course, Muslim investors represent a large potential market. There is an estimated 8 million Muslims living in the United States, and the Muslim population is projected to grow. Islamic banking and finance can provide the needed financial products and services that comply with Muslim religious beliefs to satisfy the demand from this market.
Social Impact Investing (SII) presents another growth opportunity for Islamic banking and finance. The estimated size of the SII market globally in 2015 was more than US$12 billion with significant growth potential. Impact investing includes areas of social impact (for example, job creation, environmental impact, and governance standards) for which Islamic values provide guiding principles but not text-derived rules. SII managers will seek out investments with the greatest potential social impact and screen out any investments that violate Islamic principles. SII also necessitates actively managing and monitoring the social aspects of a company after an investment is made. Islamic financial instruments can be attractive options for Muslim and non-Muslim investors who are looking for such value-based impact investing.
The objective of Islamic economic transactions is to promote growth, which is similar to conventional models. These transactions also need to adhere to religious and ethical standards. Under Islam, economic transactions should benefit society as a whole.
