Islamic banking needs to change from being Shariah-complaint to being more service oriented, equitable, transparent and real. By ARSALAAN AHMAD SIDDIQI
Did Citibank ever tout itself as a Christian Bank? Ever noticed an institution in India market itself as a Hindu Bank? The answer to these questions is an obvious "no".
Which makes you think: Why does a bank like Dubai Islamic Bank (DIB) need to call itself Islamic? Do we really need a superlative for the activities that the bank undertakes?
Such conundrums require an explanation to customers who are increasingly becoming aware of Islamic finance and want answers to the kind of activities being really undertaken by the institution. Some of this enhanced interest is a result of aggressive marketing of the Shariah-compliant methodology. Much of it though can be attributed to the myriad seminars, symposia, conferences, training programs, newswires, and product announcements carried out by practitioners and experts of Islamic finance. Islamic finance is the new buzz word, the "in" thing!
However, to a resident of Swaziland (without sounding condescending to the place) Islamic finance has something to do with.... Islam! Yes, but what exactly?
THE CONNOTATION
The Islamic system of living encompasses the entire sample space of living. It is a comprehensive code of conduct that governs our dealings with Allah and His beings. It is therefore important to emphasize that Islam lays a strong foundation of moral rectitude, distributive justice and fairness in dealings. According to a notable Shariah scholar, "There have been more books written by religious experts on Muamlaat (dealings) than on Ibadaat (worship)".
All this means that our financial dealings are governed by an Islamic code of conduct which pre-requires honesty, fairness, and lack of exploitation.
In this context, the word "Islamic" in Islamic finance refers to a system which is consistent with the diktat of Shariah. We may not have needed the superlative 'Islamic' for our financial institutions had we imbibed and implemented the concepts of Islam in our financial dealings. That not being the case, Islamic finance had to emerge sooner or later, as an alternate to the prevalent financial and economic system which needs an overhaul.
It is important, however, to emphasize that every thing related to conventional form of finance & banking is not 'haram' per se. It is the mechanics of the transactions, the processes involved that make a transaction unacceptable to Shariah. In other words, you correct the process and you correct the problem; simple? not quite.
THE CAVEAT - ISLAMIC FINANCE IS NOT JUST RIBA-FREE FINANCE
While the evidence against Riba in the primary sources of Shariah (Quran, Sunnah, Ijma, Qiyas) is overwhelming, it is very important to emphasize that Islamic finance is not only Riba-free finance - it is a complete system that embodies the essentials of transparency, honesty, fairness, equity, and courtesy.
An Islamic financier needs to be as service oriented, as courteous and as efficient (if not more) than his conventional counterpart. I cannot charge 15% profit from my client if the ongoing lending rate he is being offered nears 12%. Gone are the days where customers used to pay the "cost" of being Islamic (God forbid).
Has Islamic banking provided panacea to the poor man?
It is needless to argue as to what constitutes Riba, or which activities are prohibited under Islamic law.
The understanding of Riba is clear and there is no conflict of opinion on it. But it is as much a sin to enable the textile factory owner to diversify from his $5 billion enterprise to $6 billion, while we ignore a poor rickshaw driver who only needs a rickshaw for his living. Will a currently modeled Islamic bank grant him that loan (assuming normal credit worthiness)? Will an Islamic bank provide loan to a poor widow who needs it for a little cottage industry?
It is not Riba being debated here but the way we are dealing with Islamic banking. Even if we assume that the poor widow is granted the loan, will she be charged preferential rates or be paid more than three per cent by XYZ Islamic bank, while Mr UVW from ABC industry is paid 8% on his "special premium category deposit"?
Islamic banks, with all this talk of Riba-free and 'halaal' banking, will still finance one of the large-scale conglomerates and not finance a small-time tuck shop owner. Employees will be paid a pittance, service levels will be abysmal and systems not at par with the very best. This is the reality we are faced with, and a reality we need to change quickly.
It is a fallacy on the part of practitioners to keep emphasizing the benefits of "riba-free" without actually imbibing the pristine concepts of equitable distribution and sharing in the benefit (and risk).
True, Islamic finance will result not only from a specialized product offering approved by Shariah scholars. It will also result from the benefits of the sharing concept in Islam trickling down to the common man. Additionally, Islamic finance needs to be implemented by those who value faith as much as they value the business. True products (in spirit and in substance) will only result when Islamic banking is not restricted to Shariah approvals and product mirroring, but emerges as a viable and true alternative offering customers a breath of fresh air from the inefficient and inequitable system of primarily debt finance (what Islamic finance is currently mirroring). The Islamic professional needs to work in it as THE job taking it as his ethical responsibility to ensure that hypocrisy is not committed in the name of Shariah.
If Islamic finance has to market itself and gain mass appeal, it will not be through fancy product structures, crisp legal documentations and highly paid Shariah scholars but by having the economics of Islamic finance in sync with the larger aims of Shariah. If Islamic banking is restricted to selected audiences and markets an image of Shariah through its practitioners, it will never really be in line with the spirit of faith even though the best Shariah scholars monitor the board and the Shariah team is internationally reputable. The implementers needs to believe what they are doing is not merely to supplant a current product offering but to actually enable their customers to experience ethical, transparent, service oriented, fair, and real banking.
While we may sell products in the short-run to those who value the Riba-free aspect we can not commit an eyewash by camouflaging a conventional transaction with the sugar-coating of Shariah and expecting to sell it to our conscience and to the customer.
Islamic banking and finance will only succeed when the philosophy which underlines the way everyone should conduct transactions is followed in letter and spirit. The evidence against Riba and unfairness can not be denied. But the next time you walk-in an Islamic bank I am sure you should expect more than just Riba-free.
Arsalaan Ahmad Siddiqi is a practitioner in Islamic Finance currently associated with a GCC- based Islamic Bank. He can be reached at arsalaan@gmail.com. The opinions are writers personal and may or may not be subscribed by the institution he represents.
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