Excerpts from The Star (2 Nov 2009) :
While Malaysia is doing a great job in promoting Islamic finance, the adaptation process to some of its products will need a deeper look or “a second visit”, according to a renowned Muslim scholar. Dr Hatem El-Karanshawy, founding dean of the Qatar Faculty of Islamic Studies, has voiced caution over the need to quickly Islamise products just to be at par with other conventional instruments. “We should not rush to adopt products and Islamise them because we would like the products to be on the same footing as other western institutions or non-Islamic banking that are not based on Islamic principles,” he said.
I tend to agree with the statement above. In our efforts to tap into the lucrative business of Islamic finance and attract the Middle East’s petrodollars, we got carried away by “liberalizing” the Islamic financial products so that they are deemed to be Shariah compliant but in actual fact, they are exactly like their conventional counterpart.
There have been numerous calls from the Shariah scholars and finance academicians – if we do not curb such activities and continue with the replication that result in “direct mutation” of conventional products into Islamic products, the ummah as a whole is not generally better-off.
Malaysia has huge potential to be the main player in the Islamic finance arena because of the following reasons :
a) Bank Negara Malaysia is very supportive of the move to bring Islamic financial institutions into Malaysian soil. They have been aggressive in promoting Islamic finance opportunities with strong backing from the Government of Malaysia
b) The industry players are also strong advocates of the move initiated by BNM.
c) The HQ of IFSB is in Kuala Lumpur. It is hoped that more standards and guidelines can be issued to meet the needs of Islamic financial institutions and takaful operators in the near future
d) The setting up of INCEIF and ISRA in Kuala Lumpur – it is hoped that the graduates that are well versed in both Shariah and Finance fields can be produced to support the shortage of human resources in the Islamic finance field. On-going researches can be conducted to find ways and means to improve the current situation and promote new innovation
e) Various incentives and tax benefits
And the reasons can continue on. However, despite the above, we must not forget that there are other improvements that need to be looked at locally and internationally :
a) the local laws in Malaysia are still under civil laws and some of the Islamic commercial cases are not given due justice. Therefore, there must be amendments to the relevant Acts to cater for these cases.
b) here is a need for a paradigm shift in the thinking ways of the industry players. We acknowledge the fact that profit orientation is the motivation to run a business, however, having a 100% Shariah compliant product does not deny the businessman his profits. So there must be a clear understanding about the Islamic concepts in finance so that these businessmen/bankers etc do not only chase after “big bucks” but to ensure that the process and the financial product do not contravene any Shariah rules/guidelines. We should scrap the famous “tidak apa” or “never mind” attitude and sway away from the famous “darurah” reason. Islamic banking has been in Malaysia for more than 2 decades and since then, the industry players could have improved the way they are doing business and come with more innovative and accepted products and drop the “controversial and unacceptable” products like inah and arranged tawarruq.
c) improve the Islamic money market instruments so that the Islamic financial institutions can have the mechanism and platform to compete fairly with their conventional counterparts.
It is very disturbing to find out that despite Malaysia having the infrastructure and stable economic and political condition, we failed to attract enough FDIs (we even lost to Thailand – where politically is relatively less stable than our country, in fact we can see on TV, the riots between the Red Shirts and Yellow Shirts almost on weekly basis and yet able to attract more FDIs into their country).
Investors are generally looking for opportunity to make money for themselves and Islamic finance is a lucrative and huge business and Malaysia having been promoting itself as a hub for Islamic finance is still unable to attract investors into the country – well, there is surely something wrong somewhere.
Is it the Government?
Is it the regulators – too strict or too liberal?
Is it the incentives – not competitive?
Is it the infrastructure?
Is the financial products?
Hhmm, which is it, I wonder…..
