Islamic Finance is Growing
The buzz of Islamic Finance is doing rounds in the corridors of international financial hubs with a market presence expected to reach $2 trillion this year. Many conventional banks are also heading quickly to measure up their market shares in the relatively new and rapidly developing arena. Even governments are gearing up for the Islamic Finance option of public borrowing.
An article, “Islamic finance: By the book” by Robin Wigglesworth, published this week in Financial Times mentions that the race is on between the UK, Luxembourg, Hong Kong and South Africa to become the first non-Islamic country to issue sovereign sukuk (Islamic variant of debt instruments / bonds). The article also quotes very encouraging statistics from “World Islamic Banking Competitiveness Report 2013-14”, a report published by EY (formerly Ernst & Young). According to the report 38 million customers of Islamic Banks worldwide made it possible for Islamic Banking to have formidable annual growth of 17.6% over the last four years.
Even after several years of the launch of Islamic Finance its Islamic nature is a topic of heated debate. Many concrete arguments exist on both sides of the divide.
The arguments pertain to two different levels of analysis. One level is that of the detail, the micro-jurisprudence level, whereby objections are made on the very details of the methods involved in Islamic Finance transactions. Their validity is challenged on the grounds of general rulings or specific instances from binding precedents. Objections of this kind include the criticisms on conditional nature of multiple contracts, obligatory charity, etc.
Such criticism is diffused by Islamic Finance scholars by meticulously following the jurisprudence specifics in drafting standard operating procedures and contracts of all Islamic Finance transactions.
The second level of criticism, which is hard to diffuse, is that of the thematic level. The objection is simple; Islam advocates equity finance and (to say the least) strongly discourages debt finance. Then how can a system raised primarily on debt finance and benefiting thereof be labeled as Islamic?
This line of criticism goes on to question the resolve of Islamic Finance specialists in coming up with Islamic solutions (like Murabaha Finance, Diminishing Musharakah & Ijarah Finance) to meet client demands of conventional products instead of molding the client outlook in favor of equity-based Islamic products like Modarabah and Musharakah.
Solutions of many complicated problems could be incrediblysimple!
Mullah Nasruddin can be quoted as no authority in this debate. However a story of his comes to mind in which he is looking for a lost ring in his garden. When asked as to where he had dropped it, he calmly told that he had dropped it inside his house. The questioner was understandably baffled, but Mullah confidently defended his position on the grounds that the inside of his house was too dark to find anything!
May be the solution of Islamic Finance debate lies in equity finance products (regarding the validity of which there is general consensus) where not many are looking, probably because the light is elsewhere.