Dear Ali Sakti,
When Barack Obama addressed the Muslim world a week ago, he mentioned the innovations that Muslim communities had developed over the centuries: the order of algebra; magnetic compass and tools of navigation; mastery of pens and printing; understanding of how disease spreads and how it can be healed. But the US president never mentioned Islamic finance, that ethical and principles-based way to fund real economic activities to which more and more people, especially non-Muslims, are turning to following the global financial and economic crisis.
A blogger remarked: “Obama could have caused a great infusion of cash into the US economy by mentioning Islamic finance and Islamic banking, or a long term JFK-like Man on the Moon vision, by aiming for a dual banking system, conventional and Islamic, or as the British call it, conventional and alternative, which is their euphemism for all things ‘Islamic’ without using the word Shariah.
“Had Obama even said ‘Islamic finance’ once, he could have caused a net inflow of Shariah compliant capital flight into US money centers, banks and financial markets.”
Obama said his Cairo speech was meant to seek a new beginning between the US and Muslims around the world, one based on mutual interest and respect. Shouldn’t the mutual interest include Islamic finance, which a growing number of US financial players believe can help get the sector back on track?
The rest of the world is obviously not waiting for Obama to set the direction. Australia, which sees itself as a western nation trapped in an eastern environment, has decided on Islamic finance as a cornerstone of its ambition to make Sydney a financial services hub for Asia. "There're great opportunities such as Islamic finance," said financial services minister Chris Bowen.
"The majority of the world's Islamic population lives in Asia, and Singapore and Kuala Lumpur are trying to corner this market for themselves, and Australia can play a role. Even if we only take a small percentage of the market it could generate a lot of wealth and a lot of jobs in Australia."
Bowen, regretting that Australia has not yet passed a law allowing the operation of Islamic finance institutions, described Islamic finance as an untapped opportunity for Australia. “We are very good at managing money, and in superannuation we have the fourth-largest pool of funds under management in the world. We've developed really good skills but we don't export those skills."
While Australia is morale-boosting news for the Islamic finance industry, measures still need to be undertaken to make Islamic finance more presentable and acceptable to the rest of the world that dabbles in finance. A clearer reflection of corporate governance practices is one, as little has been written on governance structures in Islamic banking, especially in relation to Shariah advisors. Strengthened regulation is another.
The malpractices and playing fast and loose with the rules were what brought conventional finance to its knees. These could happen in Islamic finance, too. “Islamic finance is not immune from such pitfalls,” said Saudi Arabian Monetary Agency governor Muhammad Sulaiman Al-Jasser.
A timely warning as Islamic finance seeks fresh fields to conquer.