INCEIF’s recent visit to Adam Smith Business School (ASBS) at the University of Glasgow in conjunction with IPAFEM Conference on Islamic Finance 2015 has been both fruitful and enjoyable. Our meeting with the Director of Graduate Studies, Professor Robert Paton, demonstrated his passionate affection for the father of modern economics, none other than Adam Smith (1723-1790) himself who wrote the Theory of Moral Sentiments (TMS) in 1759.
Revival of TMS is evident in the aftermath of the US subprime crises where the greed of Wall Street and bad governance of the Federal Reserve have led banks to adopt a very risky conduct. Weak governance poses serious questions to the morality of bank directors and senior management in their passing of hefty fees, pay and bonuses for themselves. What is needed now are actions based on values that go beyond profit seeking, where trust is founded and anxiety repelled.
These values as put up by Adam Smith in the TMS are “prudence which is a virtue that is most useful to the individual” while virtues such “humanity, justice, generosity and public spirit are the qualities most useful to others.” Another virtue is “sympathy” which Adam Smith described as arising when one imagines how one would feel in the circumstances of others. He maintains that sharing the feeling of others as closely as possible is our main driver of life.
How these values are acceptable to a profit-maximizing market economy today is a big challenge for humanity to model and embrace. Correcting the financial system by printing more money and bailing out failed banks may be short-term solutions but in the long-run, the unattended bad behaviour of some individuals in Wall Street will increasingly pose greater threat to society with unwarranted injury to welfare and security (fasad)
While Islamic finance has been generally “Shariah-compliant-centric” the trust of ethics and morality (akhlak) is evidence in the corporate and Shariah governance of IFIs. Achieving their commercial objectives requires sound policies and execution of strategies through robust processes and procedures. All these should be driven by values embodied in the Maqasid al-Shariah (intent of the Law) where the protection of public interest is core and fundamental. This attribute in Islamic Finance went along fine with Adam Smith’s thinking on prudence and sympathy.
Islamic ethics is a study of moral conduct based on the teaching of the Quran. Human conduct can either be a virtuous one (mahmudah) or an act of vice (mazmumah). How one becomes good and evil is a question that philosophers have unfailingly tried to find answers for centuries. The TMSaddresses many such problems that early Islamic scholars such as Imam Al-Ghazali (1058-1111) has been able to give convincing answers.
Ihya Ulumuddin which is Al-Ghazali’s monumental work on ethics provides striking insights into the theory of ethical choice, that help explain the why people behave ethically or unethically. People whether in the boardroom or at the front, middle and back office are consistently exposed to temptations and evil tendencies in making business decisions that can lead them to behave against public interest. Hence, a striking balance between profit-seeking behaviour and concern for the justice is vital today in the hope to prevent new rounds of financial crises in the near future.
By Prof. Saiful Azhar Rosly