Making Islamic finance beneficial for future generations.

By Farouk Abdullah Alwyni, the executive director of the international banking and financial institutions division at Bank Muamalat Indonesia.

Islamic finance is now being steadily practiced in many parts of the world, including the Gulf region, Southeast Asia, Europe, America and Australia. Many stand-alone Islamic financial institutions, both banks and non-banks, have been set up; and along with this trend many major western financial institutions have established their own Islamic windows.

The question now is whether the growth of Islamic fi nance is really contributing to the creation of a more ethical financial
sector, more sustainable development, and a more equitable economy? Some Islamic finance researchers have already expressed concern that Islamic finance, especially in the form of Islamic banking, has just become a carbon copy of conventional banking: where most of the dominant types of financing are in actual fact just conventional debt financing structures in Murabahah or Ijarah form.

However, the real debate actually lies in the challenge of integrating the form with the substance of Islamic finance. Without its substance, Islamic fi nance would be just another type of fi nance, losing its moral and ethical spirit. It is also important to note that Islamic finance as practiced by Islamic fi nancial institutions, at the end of the day is still a profi tmaking enterprise.

There are shareholders and depositors who expect to receive profit through using Islamic financial institutions. Here, of course, we cannot contradict between the social and moral mission of Islamic finance and profit-oriented Islamic financial institutions. Without generating profit, Islamic financial institutions would not be able to sustain their existence.

So how can the Islamic financial institutions differentiate themselves from conventional financial institutions? Here,the challenge is how Islamic financial institutions can project themselves as value-based institutions with objectives greater and purer than simply achieving profit.

Profits issue
Actually, under the present circumstances, there is a possibility of convergence between modern conventional financial institutions
and Islamic financial institutions in terms of spirit. Nowadays, we are seeing increasing numbers of major international financial institutions attempting to reconcile the drive for profit with the need for social responsibility. Some major financial institutions are making considerable efforts to walk the fi ne line between conscience and profit, and to recognize that not everything important in the world can be counted.

So it is not necessarily reinventing the wheel for Islamic fi nancial institutions to stay true to the foundations of their establishment, and to be consistent with Shariah principles. By keeping their commitment to the Shariah spirit, Islamic financial institutions will be at the forefront of future financial institutional development. Islamic financial institutions will be the embodiment of the concept of sustainable development and caring economics, and this will give them a long-term advantage as corporations that refuse to compromise their values for short-term profi ts.

Islamic financial institutions should treat profi ts as a by-product, rather than an ultimate goal. The ultimate goal is to add
value, to contribute to the creation of a more sustainable world and to improve human civilization. In short, Islamic financial institutions should aspire to greater goals, and let profit look after itself.

However, in a world dominated by short-term thinking, to realize these aspirations is not that simple. It will need enlightened shareholders and understanding, expert management to subscribe to and achieve these concepts. These are the key people who must understand the idea that establishing Islamic financial institutions as a real and influential force for economic good will need a commitment beyond profit. Again, this concept should be nothing new.

In Jim Collins’ two remarkable researchbased books, ‘Good to Great’ and ‘Built to Last’ (together with Jerr Poras), he demonstrates how many enduring and profitable companies in the US operate by viewing profit not as a sole objective, but instead as a positive result. The research shows that a ‘bigger objective’ orientation can be a successful characteristic of major international companies.

Conclusion
By following this ethos, Islamic financial institutions could position themselves not only as Shariah compliant profit-making entities, but as entities willing and able to contribute to a more sustainable,equitable and caring economic system.