To my mind Islamic Finance has always been both responsible and ethical and, for that matter, will continue to be so. These are core values that are required by the objectives of Maqasid al Sharia ’a. The challenge, as always, is in the execution or the demonstration effect of these values.
One major advantage of Islamic Finance is that it needs no exogenously imposed ethical rules as the likes of ethics, sustainability and enforcement are built into the infrastructure of Islamic banking and finance. The three major pillars of: maturity matching, risk matching and value matching in the assets and liabilities of banks’ and financial institutions balance sheets ensures stability and sustainability. Such a balance sheet also constrains the ability for the banks’ to build excessive leveraging power.
Debt has become a major problem at both a household and country level. In the absence of a global work-out mechanism, risk-sharing instruments of Islamic Finance provide solutions to the global debt problems like those faced by Greece at the moment.
Islamic Finance also has the power to assist in greater financial inclusion through asset building for large segments of the population that are currently excluded from building assets and therefore sustainability.
The upcoming inaugural meetings of the Responsible Finance Institute and the Global Ethical Finance Forum in Edinburgh will provide a significant opportunity for a consolidation of commonly held values and to re-align around initiatives that make a difference for the betterment of all humanity. Both INCEIF and ISRA will be well represented by several members of Faculty, International Governing Council, Board Members and strategic partners. This is in recognition of the intellectual horsepower that both these organisations and their stakeholders possess, and also the fact that (per the Thomson Reuters Global Report November 2014) 11% of the global output of accredited and referenced research in Islamic Finance comes from INCEIF and ISRA.
The research agendas of both these institutions reflect a continuing clear line of sight between Islamic Finance and Ethical and Responsible Finance. For example, the soon to be published paper, from Professors Mirakhor and Bacha, entitled “Risk Sharing in Corporate and Public Finance: The Contribution of Islamic Finance” will soon be included in the PSL Quarterly. Prof Mirakhor’s recent Keynote address at the launch of the Maybank Islamic Auditorium at INCEIF on the topic of “Financial Inclusion in Islamic Finance”. My own paper with Prof Mirakhor entitled ‘’The Moral Foundation of Collective Action against Economic Crimes” are but three of many recent examples of the research initiatives underway at these institutions to provide the ‘’demonstration effects” required to level the Global Financial playing field to a more responsible and ethical basis.
Islamic Finance has always been there, it is just a case of shedding some new light through old windows!
There is much to do and not a moment to lose.
By Daud Vicary Abdullah