Islam permits trade but forbids usury, so proper Islamic banking and finance should take the investment-inclusion approach.
THE re-emergence of Islamic economics and finance has driven economists and scholars to advance a wide-ranging theoretical structure of Islamic finance.
Experts have been calling for more than three decades for virtuous and lawful financial products and instruments.
Some scholars have the courage to embrace purely Islamic financial products, yet there are a few who have ended up with the duplication of conventional products.
It is a wake-up call for a post-mortem on what has happened and to realign to the objective.
For Muslims, departing from the foundations of Islamic law could render activities conducted under its name religiously intolerable.
Looking at what is happening today, perhaps it is not unfair to conclude that most of the Islamic debt-based financial products are far from realising the moral obligations and reasonable distribution of wealth, unless Islamic banking is brought out from the conventional regime.
Proper realisation of Islamic banking and finance would require understanding Islamic legal and moral agendas.
In such a situation, financial inclusion for many Muslims is not the best answer to uplifting social welfare, promoting economic sustainability or normalising inequality.
The Quran has underscored the Islamic stance towards interest as follows, “That is because they say: ‘Trade is like usury,’ but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are companions of the Fire: They will abide therein (forever).” (The Quran, 2: 275)
We need to move to the business or investment-inclusion approach.
Findings from broad studies conducted in developed and developing countries have shown that the relationship between equity ownership, economic and social progress is positively correlated.
Increasing equity ownership brings more progress to society.
As a result, access to finance also will widen among the low and medium-income groups, while at the same time it will reduce poverty and narrow the inequality gap.
By moving towards this aspiration, the Government’s stance concerning the National Transforma-tion Policy (2011-2020) will be able to re-engineer economic growth for greater prosperity and maintain the people-centric economic model that is inclusive and sustainable.
The proposed business-inclusiveness approach provides a crucial platform to ensure the five-year Eleventh Malaysia Plan transits to an advanced economy and inclusive nation by the year 2020.
Towards this end, all developments mobilising the new shift will enrich the lives of the people and enable them to partake in the country’s economic prosperity.
Some living proof in Malaysia is the establishment of business and investment institutions such as Permodalan Nasional Berhad (PNB), Tabung Haji, Kumpulan Wang Simpanan Pekerja, Felda Global Ventures Holdings Berhad and a few others which have been great successes.
These institutions managed to expand equity ownership among members and subscribers, be they financial or business illiterates or otherwise.
The main reason for their success is that the companies are managed by those who are sound experts.
In the same vein, the commodity-based institutions such as the Malaysian Rubber Board and Malaysian Palm Oil Board, or industrial-based institutions like the fishery bodies may need to be empowered strategically.
Indeed, one or more of these successful institutions remain steadfast in defending the country’s financial strength and have been able to fund selected projects.
According to Malaysia’s largest fund manager, PNB, the group chairman has set a target to increase its total assets under management to about RM350bil by 2022, from RM259.49bil currently.
Recently, Tabung Haji purchased 1.75 million additional shares to hold 5.09% of DRB-Hicom Bhd’s total shareholding. As unit or account holders, they are able to take part in providing funds in the industry as well as sharing the cake.
Encouragement of public shareholding in the corporate sector, realignment of government statutory bodies to their main function and creating business literacy among people, among others, needs the boost of experts, economists and scholars, as much more effort is needed to push our nation to the next level.
Bringing people to the business-inclusion model will enhance economic growth and tackle poverty and inequality. The next step is for the policy-makers to jumpstart new business ventures, which would set up the arena.
We should also not overlook the need to strengthen the governance aspect covering mismanagement issues, corruption and unnecessary political influence.
In practising the spirit of the Quran by encouraging trade, we will be blessed by departing from prohibited activities of riba’ (usury).
Mohd Noor Omar is a Fellow with Ikim’s Centre for the Study of Syariah, Law and Politics. The views expressed here are entirely the writer’s own.
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