ISLAMIC BANKING: LET US CROSS THE HURDLES
MUAZZAM ALI
Islamic banks began operations nearly two decades ago in very favorable circumstances and with high hopes. It was generally believed that with the Muslim world is vast resources and people is enthusiasm for the revival of Islamic values, Islamic banks would soon present the world with a dynamic financial system. Unfortunately, these hopes and aspirations have not as yet been realised. It is time to take stock of the situation and find out what has stood in the way of the desired development of Islamic banking and identify the causes of its slow progress.
The two fundamental resources needed for the development of any financial organisation are:
1. An adequate and continuous supply of money.
2. A supply of trained and dedicated personnel.
Money
In the early 1970s, the rise in the oil and natural gas prices resulted in a massive increase in riches and immense surplus funds in the oil-producing Muslim countries, especially in the Gulf region.
Also, in Muslim countries without oil, developments in the commercial, industrial and agricultural sectors created a class of very rich people. So, there was no shortage of money, and the stage seemed set for Islamic banking to be launched as a strong competitor in the financial sector.
At about the same time, the Muslim societies had begun to assert their Islamic identity. They wanted to organise their lives in accordance with traditional Islamic values. One important aspect of this was the desire to free their financial affairs from the un-Islamic practice of dealing in interest. To do this, it was necessary to turn away from the practices of interest-based, conventional banks and set up interest-free Islamic banks.
It was most opportune that this desire to create an Islamic banking system coincided with the sudden increase in wealth of many Muslim countries. It presented a golden opportunity to create Islamic values in the financial world of the Muslim countries and certainly, at first, there was great enthusiasm for this project. But this opportunity was not fully taken advantage of by those who could have done so. Why was this?
One of the reasons, perhaps, was that the great reserves of wealth that the Muslim countries came into were concentrated in a few hands, those of the ruling elites, politicians, industrialists and businessmen.
It is now apparent that many Muslim governments and the wealthy classes do not believe in, and have not a strong commitment to, Islamic banking and pay it only lip service. If these Muslim financiers had put only 10 per cent of their wealth into Islamic banking, the situation would have been very different.
As it is, only Muslims in the middle-income category or those who cannot get funds from conventional banks owing to lack of collateral bank with Islamic financial organisations. The result is that Islamic banks are seen as poor men is banks. The rich Muslims prefer to leave their funds with the conventional banks. Some of them do not even trust their own conventional banks, but take their funds to Western institutions.
Why do so many rich Muslims deprive their own countries of the capital so desperately needed for their economic development? Why do they harm the very countries, which made them rich in the first place? Is it because they have no faith in the future of their countries and are unwilling to sink or swim with them?
The reasons given by Muslim investors for their non-participation in Islamic banks is that these banks have not, as yet, developed to an extent where they can handle large projects and that substantial investments must therefore go to conventional banks. In saying this, they do not take into consideration that financial organisations cannot develop unless they are supported by the community or by at least a substantial group of the rich people.
Most of today’s powerful conventional banks started off in a small way with meagre funds. They only grew strong and powerful with the support of their peoples. The people who backed these small organisations did so because they had great faith in them. They had the spirit of enterprise and were willing to take risks for potential gains. This pertinent fact of history must be emphasised if Islamic banking is to gain the attention of rich Muslims and so revive the early enthusiasm which filled so many Muslims in the 1970s.
Another possible reason why rich Muslims are not supporting Islamic banks may be that conventional banking, having been well established for centuries, seems to them safer and certainly guarantees a predetermined return with little or no risk to capital.
Whatever their reasons, is it any wonder, in these circumstances, that Islamic banking has not made the progress which was certainly expected of it at the beginning and which the Muslim peoples aspired to and are still aspiring to.
As long as the rich Muslims do not place their funds in Islamic banks, Islamic banking will not be able to meet the expectations that were raised at the time of its launching. If Islamic banking is to fulfil its potential, it is crucial that the relevant facts be brought to the attention of those Muslims in control of financial resources.
Personnel
Let us now turn to the other ingredient essential to the success of financial organisations: personnel. Even the injection of sufficient funds cannot ensure the success of a financial organisation if there is not an adequate supply of capable, trained and committed people to run it.
This is truer by far of Islamic banks than of conventional banks. The personnel charged with the running of Islamic banks must have not only a thorough knowledge and understanding of the concept of Islamic banking, but also a firm belief in it and a strong commitment to develop it to the best of their abilities.
This is because Islamic banking is radically different from the conventional system and had to be developed from scratch. Whereas conventional banking personnel can succeed by standing on precedent and routines built up over centuries. Islamic banking presents a continual stream of new problems needing the attention of alert and original minds.
Yet there is no denying that, with a few exceptions, the people who have been at the helm of affairs of Islamic banks have had neither the knowledge and understanding of the principles underlying Islamic banking, nor a strong belief in it and, therefore, little motivation to make a success of it. Because they did not themselves fully believe in the Islamic system, they made little effort to train their staff in the principles and operations of Islamic banks, nor did they initiate much in the way of serious research and development programmes to evolve new Islamic financial products and services.
How This Situation Came About
When Islamic banks began to be established in the seventies, there were hardly any people conversant with the knowledge and understanding of the concepts behind it. In their anxiety to start the Islamic system, the banks were launched without any proper training of personnel, either in the concepts or the operations. Some of their staff was recruited from conventional banks. Others joined Islamic banks not because of their commitment to the principles of Islam, but because they could not find a place in any established bank or because they could get higher salaries in Islamic banks.
As all these people had been educated and trained in the conventional banking system, naturally, their mindset had been shaped by the value-neutral, interest-based conventional system and they found it difficult, if not impossible, to make a sudden switch from the principles and operations of conventional banking to those of Islamic banking. All they were able to do was to use the conventional financial products they were used to, alter them slightly, change the name and slap the word lslamic onto them. They did little to study the new concepts with a view to designing new financial products.
But to claim that a bank is functioning on the Islamic system just because it uses Islamic terminology is not enough. Its clients must believe in the authenticity of the claim. The tragedy is that because some professedly Islamic bankers are not well-versed in the concepts of the Islamic financial system and banking methods, they are not capable of presenting their case to their clients. Nor are they in a position to explain Islamic banking or to stand up to those who challenge the concept of Islamic banking.
The New Islamic Bank Managers
To this end, intensive education in Islamic financial concepts is essential. In recent years, a few training and educational institutions have come into being in the field of Islamic banking. The majority who are graduating from them are young and well-educated. They do not have the tunnel vision of conventional bankers. Moreover, they choose to study Islamic banking because they believe in it and have faith in its viability.
It is gratifying to note that quite a few young Muslims studying for their Master’s and Doctor’s degrees at the Universities in the West are writing their theses on Islamic banking.
It is now time for the conventional bankers running Islamic banks to bow out and allow these well-educated Muslims, who have also studied Islamic banking and believe in it, to replace them.
To promote Islamic banking, the new managers of Islamic banks must be dynamic and forward-looking men of vision who can build their organisation on the distinctive Islamic heritage.
In order to inspire their clientele, they should be able to present Islamic banking as a solid and durable institution capable of portraying the Islamic identity.
Conclusion
To sum up, two things are required if Islamic banking is to realise its full potential, which is very considerable, and meet the aspirations of the Muslim peoples:
1. The rich Muslims must be persuaded to invest in Islamic banks.
2. Islamic banks must be staffed by people qualified in Islamic banking methods.
The rich in the Muslim countries must be persuaded that they have a moral obligation to support the system by investing their funds through Islamic institutions.
The realisation of the full potential of Islamic banking will only be possible through employing personnel who understand the principles and practice of Islamic banking, believe in it and have a commitment to develop it to the best of their abilities.
There is no shortage of talented and educated Muslims in the world, particularly in the field of banking and finance. The fact that Muslims occupy key positions in major financial organisations of the world is indicative of how highly Muslims are rated. These Western financial organisations have been able to lure Muslim talents into their service. As against that, Muslim financial organisations have failed to attract and inspire Muslims qualified in Islamic banking. It is only recently that, under the supervision of the Sharia Boards, Islamic banks have seriously tried to conduct their operations in accordance with the spirit of Islam.
This is a sad reflection on the management of Islamic banking. It is essential that Islamic financial managers now begin a campaign to attract qualified young Muslims to work in their ranks.
Edited By Asma Siddiqi
Institute Of Islamic Banking And Insurance London
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