By Jaafar S Abdulkadir
As Islamic Finance gets mainstreamed into the global financial system, there are bound to be many factors that shall influence its uptake in different regions. The need to enhance financial inclusion and also create an enabling environment to attract capital investments informs many government policy interventions designed to overcome the barriers to the growth of Islamic Finance.
Customers of the Islamic finance products are primarily Muslims who are driven by the desire to distance themselves from the conventional finance industry that is characterised by the existence of the provision of interest, uncertainty, excessive risking taking as well the indulgence in what is considered non-permissible (haram) ventures contrary to what divine Shariah principles dictates.
On the basis of social conscience and environmental concerns, the ethical investment industries avoid undertaking to invest in businesses that cause damage to the environment and exploit the poor as well as undermine human rights. For instance, the Friends Provident Stewardship Fund (FPSF), the leading UK ethical fund, does not invest in companies that manufacture and sale weapons, aid oppressive regimes, engage in alcohol production, pornography and undertake offensive and misleading advertisement among other similar considerations.
The FPSF, just like the Islamic finance industry, seeks to support and invest in businesses that produce products and services that have positive long term impact on communities. This fund takes into consideration the record of companies on the conservation of the environment and natural resources, fair employment practices, community support, sound partnership with suppliers and customers as well as openness and fair play with all the stakeholders.
Both Muslim and non-Muslim customers who have strong inclinations towards ethical and moral considerations in economic and social interactions continue to become assertive, thus compelling the financial service providers to be responsive to their demands. We are bound to experience more demands for open, participatory and peer-driven services in the current century.
Islamic Finance, indeed, serves as an excellent case for the democratisation of financial services. The need for transparency, fairness and equity in the provision of financial services has never been greater. The consumer today no longer tolerates the ‘’bundled nature’’ of pricing where the fees charged is disproportionate to the quality of service. Todays’ consumers engage in doing business with entities that respect their dignity, values as well as make them experience high standards of emotional connection.
As the Kenyan government strives to put into place the necessary infrastructure and policies to spur the growth of Islamic finance, there is need to have strong focus on public education to manage the perception that may inadvertently be created by the terms ‘’Islamic’’ or ‘’Sharia-compliant” banking and finance.
In this era where emotions precede reason, and haste judgements, devoid of common sense in matters pertaining to faiths as well as beliefs, there are bound to be misconceptions about the goals of Islamic or Shariah compliant banking and finance.
The role of finance, whether conventional or Islamic, meets the same financial intermediation needs. Both models serve to provide payment services, bridge the gaps between those who have surplus funds and those who have deficits, increase asset liquidity, help in pricing, pooling and trading of risks. The two systems also help in the generation and distribution of information necessary for economic decision-making purposes as well as facilitate the allocation of credit efficiently by aligning the flow of resources.
A major source of confusion in Islamic Finance could be in the heavy use of Arabic terminologies like “Murabaha’’, “Ijara”, “Mudaraba’’, “Salaam’’ and “Musharaaka”, among others. However, public education and awareness creation activities shall help demystify Islamic Finance and help address the issues of perceptions that might hinder the growth of Islamic finance as an alternative financing model.
We may even borrow from jurisdictions like Turkey, a secular country that describes the banks offering the Shariah compliant products as “participation’’ banks. The UK is another progressive jurisdiction that embraced Islamic Finance with no reference to the term “Islamic or Shariah” in their regulations; they called it alternative finance. UK have neither favoured the growth of Islamic Finance nor put barriers in its development. Their tax laws are neutral to all financing models.
Kenya’s National Treasury, the regulators, media, learning institutions, professional bodies, the Kenya Bankers Association and other key stakeholders in public affairs need to partner to explore ways of overcoming the challenges posed by perceptions to the growth of Islamic Finance in Kenya.
Islamic Finance can best be appreciated as a demand-driven alternative financing model that widens the choice for the customers, enhances financial inclusion, and which deepens our financial markets and facilitates the flow of foreign direct investments.^
Writer is the Head of Islamic Banking at KCB & Chair of Kenya Bankers Association Sub-Committee of Islamic Finance