The Western world has been traumatized by the global financial crisis; this crisis resulted in the West losing its confidence in the existing financial system. Many voices began calling for an alternative [to this system] and some – including the Vatican – believed that the Islamic financial system presented this alternative. They offered proof of the Islamic financial system’s suitability; including the survival of Islamic financial institutions in light of the global financial crisis, and their lack of exposure to losses or bankruptcy [during this period] contrary to conventional financial institutions. However the response of the Islamic world to such calls failed to go beyond its applaud within the media, and there was no tangible effort to capitalize on this openness towards the Islamic financial system. Efforts to utilize this openness would include laying out an operational plan in which Islamic financial institutions, scientific institutions, and professional associations form joint taskforces in order to create a business model for the Islamic financial market, setting standards and criteria for the operation of these markets, and devising detailed plans for promoting the Islamic financial system that explains its origins, and demonstrate its strengths and importance in protecting society against [financial] crises.
I have already spoken about this extensively in my previous articles, and I have warned that unless we stop talking and start taking action this crisis may pass us by without us learning and benefiting from it [at all]. Unfortunately however, what I warned against came true, as Sheikh Saleh Kamel, the Chairman of the General Council for Islamic Banks and Financial Institutions [GCIBFI] told Asharq Al-Awsat.
To be honest I was not surprised by this failure; in fact I would have been surprised had we succeeded. Why is that? Because I am aware of the reality that the Islamic world is currently facing, and in particular the Islamic financial industry which is witnessing fragmentation, narrow and instant interests being sought, and organized institutional regulation being avoided. In order to talk more specifically, I will offer two examples of this fragmentation that is taking place in the Islamic financial industry.
Firstly, there are the Islamic accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions [AAOIFI]. These standards are considered to be merely guidelines, and are not obligatory; indeed only Bahrain, Qatar, Sudan, Syria, the Qatar Financial Centre [QFC], the Dubai Financial Centre [DIFC], and the Islamic Development Bank [IDB] follow these guidelines. Had the aforementioned countries and institutions not committed themselves to this then these guidelines would have little impact for many Islamic financial institutions try and avoid implementing these standards, including many members of the AAOIFI itself.
The second example of this fragmentation can be seen in the large number of jurisprudential academies. In Saudi Arabia alone, there are two juristic academies, the first affiliated to the Muslim World League [MWL] and the second a subsidiary of the Organization of the Islamic Conference [OIC], not to mention the multiplicity of religious bodies related to the regulation of Islamic financial institutions that reject the idea of establishing a united and supreme [regulatory] authority. The lack of such an authority has led to the absence of standard practices in the Islamic financial system, which is a prerequisite for the integration of the Islamic financial system into the international financial system.
The Islamic financial system does not exist in practice other than in two sectors; banking and insurance, which confirms that the Islamic financial system has problems meeting the [Islamic] Shariaa objectives [in other sectors]. Indeed a fully integrated Islamic financial system does not even exist in any Islamic market, therefore how can we say that there is a ready-made Islamic financial system that can serve as an alternative to the current one. Here it would be appropriate to repeat the proverb, “nothing comes from nothing” and so despite our failures in presenting an Islamic financial system to the world, I am still optimistic that this system will gain a foothold in the world of finance and business – at least partially – and that it will witness an unprecedented boom over the coming years. This is in the interests of the diverse range of markets and international companies that the Islamic financial system serves as they are seeking liquidity, particularly in the young and robust markets that exist in the Arab world and especially in the Gulf. The Gulf region enjoys a large monetary surplus due to the surge in oil prices, not to mention the large developmental and infrastructure projects that are being carried out by the governments of the region. It is not possible to seize a portion of these markets other than by working within the framework of Islamic Shariaa law, as more than 90 percent of investors’ products are compliant with Islamic Shariaa law, even if they do bring in less profit than conventional products.