SHARI’A SCHOLARS VERSUS ISLAMIC ECONOMISTS

, Human Capital

By Professor Humayon Dar

 

With the rise of Islamic banking and finance (IBF), tension between different stakeholders in the industry is also becoming more and more visible. Although the use of Islamic financial services is gaining popularity, intelligentsia is also becoming increasingly critical of the industry that is deemed as merely mimicking conventional financial products. Two important stakeholders, namely Shari’a scholars and Islamic economists, are up in arms arguing against each other’s roles in IBF.

While the old generations of the two groups remain respectful to each other, younger members of the two groups have started to openly show mutual contempt. Shari’a scholars take on the view that Islamic economists lack the required understandings of Islamic jurisprudence and, hence, lodged undue criticism on Islamic financial products. Islamic economists, on the other hand, opine that Shari’a scholars fail to take into account the bigger picture when coming up with their pronouncements on individual transactions. Consequently, there is growing confusion over the future of IBF.

The likes of Volker Nienhaus believes that Shari’a scholars are engaged in conventionalisation of Islamic finance, whereas Shari’a scholars continue to contend that they are providing valuable services to Islamise conventional financial services. There is no doubt that IBF provides Shari’a-compliant alternatives to conventional financial services. However, it must also be recognised that IBF, the way it is currently being practiced, provides no alternative to conventional financial system. IBF is at best a sub-set of conventional finance, and has no distinctly different economic value proposition.

In this sense, what Islamic banking is to conventional banking is therefore no more than what an Islamic mobile phone is to an ordinarily mobile phone. Here, an Islamic mobile phone is associated with a mobile phone that provides access to certain apps that help enhance an Islamic lifestyle such as azan apps, online Quran, and a compass showing direction of qibla, etc. The operating systems of Islamic mobile phones remain the same, i.e., iOS or Android. Similarly, Islamic banks are based on the same core banking systems as used by conventional banks, albeit tweaked to accommodate Islamic financial contracts and transactions.

There is a danger that IBF may lose its significance once it matures. Conventionalisation of Islamic finance is self-destructive. Once the market fails to differentiate Islamic financial products from their conventional counterparts on purely economic grounds, IBF will lose its significance, as much as the so-called cola products (e.g., Qibla Cola) failed vis-à-vis the likes of Coca Cola and Pepsi Cola.

In the battle of thoughts, Shari’a scholars are nevertheless gradually gaining solid ground, while Islamic economists continue to retreat. While the likes of Sheikh Taqi Usmani, Sheikh Nedham Yaqubi and Sheikh Abdul Sattar Abu Ghuddah have extended their influence in IBF, the older generation of Islamic economists (e.g., Dr. Umer Chapra, Professor Nejaullah Siddiqi, Dr. Monzer Kahf and the Malaysian Islamic economists) have become disengaged with the Islamic financial services industry. Those Islamic economists who are still engaged with the industry are deemed more like Shari’a scholars than Islamic economists. The best example representing such Islamic economists is that of Dr. Mohamed Elgari who despite being an economist is more recognised as a Shari’a scholar.

Given the central role that Shari’a plays in IBF, there is a need to change the nomenclature. The likes of Dr. Mohamed Elgari (and the writer himself) should be regarded as Shari’a economists, while Muslim economists specialised in the theoretical aspects of economies of the Muslim countries should continue to be known as Islamic economists. Shari’a economists would be in a better position to work on policy formulation for IBF. At present, Islamic economists play only a marginal role in devising regulatory frameworks and policy formulation for IBF as an industry.

Notwithstanding the existence Islamic financial infrastructure such as of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB), General Council for Islamic Banks and Financial Institutions (CIBAFI) and International Islamic Financial Market (IIFM), there is a need to set up a specialised centre or institute for Islamic financial policy. This centre could either be based within an existing body (e.g., Islamic Research & Training Institute (IRTI), International Shariah Research Academy for Islamic Finance (ISRA), and the World Bank Global Islamic Finance Development Centre) or a completely new institution.

A main focus of the proposed centre or institute should be the formulation of Islamic financial policy on a macro level. It should also work as a global think tank specialising in sophisticated quantitative applied research in Islamic economics, banking and finance. The existing intellectual infrastructure for IBF has failed to focus on applied Islamic financial research. The likes of International Centre for Education in Islamic Finance (INCEIF) and Qatar Faculty of Islamic Studies have yet to come up with credible research in this respect, despite having spent huge sums of money.

This is either because of the failure in recognising such need or simply due to mediocrity of human resources. Decision makers in such organisations must review the extent they have succeeded in achieving their stated goals and/or excluding from their agendas important aspects of research and development.

Leave a Reply