Being Completely Compliant

By:Prof. Datuk Dr. Syed Othman Alhabshi.

Today, we are all but familiar with the Islamic traditions through the advent of Islamic banking, finance and capital market, despite the dismal image of Islam that has been painted by those who do not know or do not intend to know about it.

I firmly believe that the success of Islamic finance today is because the explicit vision of an economy embedded in prescribed rules of behaviour that the Qur’an has provided to mankind is the truth, the whole truth and nothing but the truth. So much so, many writers such as Abbas Mirakhor, Hussein Askari, Zamir Iqbal and others have openly stated that “compliance with these rules assures sustainable development and growth”.

The Qur’an does not have a long list of don’ts neither does it provide a long list of do’s. But the little that it gives is enough to enrich economics and finance. I just share here a few of these rules of behaviour. The first is the property-rights which empower all humans to access Allah-created resources. The rules of property-rights would form the legislative basis for redistributive measures where the less able has the legal right to redeem from the income and wealth of the more able. Would it be possible to have 1.4 billion people on this planet out of 7 billion live on USD1.25 per day, and 22,000 children die of poverty daily if the property-rights of Islam are being fairly implemented? The same rules also prohibit abuse, waste and wanton destruction of resources, giving clear implications on the environment.

Second is the principle of sharing. The prohibition of interest which incidentally is prohibited by all known religions, transforms risk shifting or transfer to risk sharing. In particular, the sharing of risks in life brings people together leading towards social solidarity and unity of mankind as a corollary of the Unity of the Creator. It is worth noting that Kenneth Arrow’s theory of risk bearing (Arrow 1971) is essentially a theory of risk sharing in that it requires that the risks of the economy are allocated among participants in accordance with their respective degree of risk tolerance. Risk sharing will also relieve human societies of the heavy burden of debt, one of the main causes of financial and economic crises of the modern day.

Thirdly, the market has an important subsidiary role of requiring the participants to internalise the rules of behaviour before entering it. This requirement has been amply emphasized by Al-Ghazali so that mistakes can be minimised. Additional rules govern the market operations, such as free entry and exit, full disclosure of information and transparency. Rules also provide remedies for such problems as annulment of contracts in case of cheating, short changing through measures and weights and asymmetry of information. These rules, if well enforced, will produce a very fair competitive market as was the case during the early periods of Islam. Today we have not been able to emulate such practices anymore. Price control needs to be continuously implemented.

Thus we see how enriching the economy will be with ideas from religions. Whilst what I have outlined is still very generic, I like to take this opportunity to offer a solution, particularly to CEOs of any company who essentially are responsible for the whole organisation’s operations. My thesis is that, if any of the operations under our purview are not rule compliant, what answer do we have for the Creator when our turn comes to meet Him personally. Reflecting upon this issue is very scary indeed because we never thought this issue will be in the list of things we need to answer for.

At the moment, when we raise funds through sukuk, we feel satisfied that we are complying with the dictates of Shariah like a fad or fashion. However, when we insure buildings or assets we do not think of takaful. When we park our extra cash we do not think of parking in Shariah compliant money market. When we invest, we only choose investments that give the highest yields, whether such yield is Shariah compliant or not is not our concern.

I remember when I was the President and CEO of a private university, the parent company which was run by 90% Muslims wanted to charge me 12% interest for a loan that I needed during our early years of operation. I told the CFO, “Shall I tell Allah Almighty that you compel me to accept this offer of loan with 12% interest when I meet Him later?”

In fact, when I was serving a so-called Islamic organisation, we were considering insuring the building that was just completed. The management was collecting quotations from insurance companies. No one thought of insuring the building with a takaful company. I plucked up courage and voice my concern because I was not considered as part of operations staff. So it was decided that a quotation from two existing takaful companies should be obtained. In the meeting the following month, again the conventional insurance company was about to be picked up because no one was sensitive to the need to employ the takaful company. What more when the takaful company quoted slightly higher price. I objected and eventually the buildings were insured with a takaful company. Similarly when we deal with others we do not practice justice and fairness, what more benevolence and yet we feel satisfied just because we consider our operations have nothing to do with being Islamic.

I am raising this concern simply because many have not realised that by being completely rule compliant, the whole organisation will be compliant, including all its assets and net worth. It will also increase the total Shariah compliant assets of society, which at the moment for Islamic financial institutions assets stand only at 0.8% of the total global financial assets.