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The Islamic Finance (IF) industry has emerged to be an integral part of the global financial scene, landmarked not only by its significant presence in many Muslim countries but also its increasing acceptance in non-Muslim world. Its growth over recent years, estimated to be around 17% per annum over 2010-2014, is nothing short of being spectacular. The robust and resilient performance of IF amidst global financial uncertainties has added further to its praise and potential as a viable alternative system to the existing so-called conventional financial system. Indeed, anecdotal evidence of the IF successes is proliferating and scholarly empirical evidence supportive of the Islamic-based model of finance is increasingly forthcoming.
While one can join in praising the successes of Islamic Finance, one also cannot help but to ponder on three noteworthy observations:
- Theoretically, Islamic Finance differs from conventional finance. In practice, however, there seems to be no discernible difference between them.
- Islamic Finance prospers only in some Muslim countries. Indeed, many Muslim countries have not embraced the Islamic-based finance model.
- Despite its rapid growth, the Islamic Finance size is still marginal as compared to the conventional finance.
The first observation has long been the focus not only of popular discussion but also of scholarly debates under the heading: Is Islamic finance Islamic? It is admitted that Islamic finance particularly Islamic banking is far from achieving its ideal. However, a verdict that it is non-Islamic would be a sheer mistake since transactions in Islamic finance and their underlying contracts are in conformance with the Shariah.
While the issue of Islamic finance being Islamic is important, there are several queries emanating from the above observations: Why has Islamic Finance not progressed to its ideal model and spread throughout all Muslim countries? Why has it remained small relative to conventional finance? Of course, the answers to these questions can be direct and obvious: the Islamic finance industry is still young and finding its way towards its ideal model. However, given the much hype and praises, more is expected from Islamic Finance.
A key question is: Has Islamic finance reached its plateau or is there a lacuna to be filled for the industry to leapfrog forward?
Fundamentally, the progress of the Islamic Finance industry, or any other industry, depends on its products (P), governing institutions (I) and people (P). Dissecting these PIP factors of success can potentially bring light on the lacuna to be filled. Benefiting from conventional counterparts, the Islamic finance is not short of product innovations. Although certain Muslim countries still have issues with their institutional quality and framework to facilitate the progresses of Islamic finance, Malaysia is exemplary in the developments of Islamic regulatory framework and infrastructure. Indeed, Malaysia’s institutional structure for Islamic finance can be adapted by many other countries provided that they have political will to do so. Thus, the real lacuna lies in the workforce of Islamic finance. Yes, it is a cliché to say that education is central to producing Islamic finance talent. But, it is more than the cliché as it relates to the requirements of Islamic finance education. And existing providers of Islamic finance education seem to fall short of providing all essential and necessary parts that construe the Islamic finance education. This lacuna, at present, remains unfilled.
Islamic finance is deep-rooted in Islamic principles or the Shari’ah. Hence, the knowledge of the Shari’ah is crucial in the Islamic finance education. At the same time, given that Islamic finance necessarily faces various sorts of risk and operates competitively in an increasingly integrated financial markets, having analytical ability to manage financial assets and perform and assess financial risk is also critical. This means the Islamic finance education must be the symbiosis of the Shariah knowledge and finance-related analytical skills. It can be further stressed that to leapfrog forward, the Islamic finance industry cannot afford to simply imitate the conventional finance. In this respect, thought leadership is needed. This means that Islamic finance education must encapsulate economic/finance theories and research capability. In short, the ideal Islamic finance education must comprise the Shariah, Quantitative Skills, and Economic and Finance theories equally strongly in depth and coverages without diluting any one of them.
In parallel to the fast-growing Islamic finance industry, more and more institutions of higher learning are offering undergraduate and post-graduate programs in Islamic banking and finance. The existing program structure of IF degrees do comprise these three core fields of knowledge. However, they are not stressed equally strongly in almost all degree programs. Thus, the IF education cannot fill the void of having graduates that are well versed with Shariah, technical knowledge of finance, and theoretical knowledge of economics and finance. Hence, the long-noted problem of “inadequate expertise in IF” continues. (To be continued in Part 2)
By Prof Dr Mansor Ibrahim