Bismillahi Rahmani Rahim.
Assalamualaikum Warahmatullahi Wabarakatuh.
A very good morning, ladies and gentlemen.
It gives me great pleasure to be at this International Islamic Banking and Finance Law Conference and to address this esteemed gathering of judges, regulators, industry practitioners and members of the legal fraternity. I am also delighted at this occasion to launch the memoirs of Tun Abdul Hamid bin Mohamed entitled, I Will Never Beg, published by the Malaysian Current Law Journal.
Islamic Banking and Finance: An Outstanding Track Record
- The Islamic banking and financial system, in its modern form, is a fairly recent creation, beginning less than 50 years ago. At the Second Islamic Foreign Ministers Conference in Karachi held in December 1970, the foreign ministers of Muslim countries resolved: ‘to undertake a study of the idea of establishing either an Islamic Bank or an Islamic Federation of Banks’.
- From the broad and rather equivocal language used in that historic Resolution, it is remarkable when we look at the developments that have emerged out of that pioneering notion. In a considerably short time, the idea of ‘an Islamic Bank or Islamic Federation of Banks’, as those Ministers alluded to, grew to become the great global enterprise that it is today.
- Over the last decade, Islamic banking and finance had steadily recorded double-digit year-on-year growth. At the end of 2015, its assets under management were estimated at 2.1 trillion US Dollars, with the potential of doubling over the next five years. Even more amazing is that the practice of Islamic finance has also transcended geographical, political, cultural and even religious boundaries. Islamic financial institutions and banks with Islamic windows now operate in more than 75 countries, evident of the admiration and high regard it has garnered among finance practitioners and governments alike, whether in Muslim or non-Muslim jurisdictions. Given its moral and ethical underpinnings, it is foreseeable that the industry will greatly influence and even transform the character and landscape of global finance, as we know it.
The Malaysian Experience
- Malaysia’s own experience in Islamic banking and finance began in earnest in the early 1980s with the introduction of the Islamic Banking Act of 1983, and the setting up of its very first Islamic Bank, plainly called, Bank Islam, in that same year. Coordinated efforts to support and sustain the industry in the country were made from the onset, including the gradual establishment of a synchronised system involving legislative, facilitative and supervisory infrastructures.
- The latest significant development in the regulatory framework was the enactment of the Islamic Financial Services Act 2013, which I consider to be the Magna Carta for the industry. The Act is a meticulous product of the review of previous laws, supplementing and refining them, to address any gaps or limitations in the regulatory framework supporting the industry’s development. Its enactment has served to strengthen the governance provisions for the industry as a whole as well as each entity operating within it.
- Malaysia’s comprehensive legal and regulatory framework, coupled with abundant liquidity, talent and thought leadership has laid the robust foundations for the industry to prosper and grow. Moreover, the creation of the Malaysia International Islamic Financial Centre (MIFC) provided the supportive impetus for this to happen. Malaysia is home to the Islamic Financial Services Board, which together with the Central Bank and the Securities Commission Malaysia, and by extension, their Shariah Advisory Councils and other ancillary bodies, has been tireless in charting roadmaps for the industry to orient its activities and expand its reach. Many of the members of these institutions are jurists and specialists in Islamic commercial jurisprudence, or Fiqh al-Muamalat. They are therefore qualified to contribute to the ijtihad on matters pertaining to Islamic Finance. These ulama and scholars are instrumental in issuing prudential standards and guidelines to guarantee a sound and stable Islamic Finance industry, both inside and outside Malaysia.
- Another significant contributor to the development of the industry is a common law judiciary that is also well versed in Islamic commercial jurisprudence. This judiciary provides the adjudicative mechanism for the resolution of disputes, and just and impartial decisions on submissions before the court. Through their interpretive opinions and precedents, the learned justices of the court have given the industry a much-needed boost in terms of reliability, security and trust.
- Due to all of these factors, Malaysia has emerged as one of the world’s most important and developed Islamic financial centres. It has more than 75 local and foreign financial institutions operating within its jurisdiction, and as at 2014, had assets under management amounting to approximately 430 billion US Dollars, which was roughly a quarter of global assets under management. Malaysia leads the world in the issuance of sukuk, holding around 66% of global sukuk outstanding as of 2015, and it also holds a dominant position in the global market for Islamic insurance (takaful), Islamic banking and securities.
The Way Forward
Ladies and Gentlemen:
- Having established a solid global reputation for Islamic banking and finance, and with a well-entrenched expertise in Fiqh al-Muamalat, I think it is only logical that the next step for Malaysia is to venture into new frontiers and establish more meaningful footprints in the four corners of the earth. Some players have already made inroads into other jurisdictions, and they deserve our commendation. The road to internationalisation is neither easy nor straightforward. Those who aspire to embark on the same path will need to be armed with ingenuity, industriousness, foresight and diligence—apart from classical knowledge of Islamic jurisprudence as well as the technical workings of banking and finance. I would think that they must keep the following in mind:
- First, as the turf and terrain of the playing field may not be as we are accustomed to, we would therefore need to exercise flexibility and adaptability.
- Second, the cultural, political, legal, economic, social and religious gaps could be wide. Therefore, efforts must be made to bridge them.
- Third, since competition can be fierce, there is therefore the incessant need to be versatile and develop our own competitive advantage.
- Fourth, prudence and expediency would dictate that serious efforts should be made to forge cooperation and even partnerships with peer organisations in the corresponding jurisdictions.
- Fifth, it is imperative to have an up-to-date grasp of contemporary banking practices and an understanding of how to adapt, improve and improvise so as to develop new Shariah-compliant products and services. There must be a willingness, therefore, to boldly go across boundaries, to reinvent and to innovate beyond the typical offerings. I would think that the less trodden paths of Islamic financial transactions such as equity-based contracts, micro-financing, crowdfunding and socially-responsible investment instruments, among others, warrant deeper exploration.
- Sixth, with regards to new and innovative products, problems may arise when it comes to trying to fit them into the Shariah context, and difficult reconciliations sometimes need to be made between classical fiqh and modern applications. Practitioners should view this challenge not as an impediment therefore, but rather as an impetus to accomplish bid’ah hasanah and good innovation, by continuing to pursue avant-garde solutions, while upholding not just the letter of the law, but also the spirit of Maqasid al-Shariah.
Ladies and Gentlemen:
- Islam encourages trade and commerce, indeed this sensible religion looks upon it with utmost favour. Prophet Muhammad (sallallahu ‘alayhi wa-salam) was himself a trader, as were several of his close companions and successors. Here, our beloved Prophet (sallallahu ‘alayhi wa-salam) instructively reminds us that ‘The merchant who is sincere and trustworthy will (on Judgement Day) be gathered among the Anbiya (the Prophets), the Siddiqin (the just) and the Shuhada’ (the martyrs)’. The second Caliph, Sayyidina Umar (radiyallahu ‘anhu), once said, ‘Death can come upon me nowhere more pleasantly than where I am engaged in business in the market, buying and selling on behalf of my family’.
- In line with this spirit of receptiveness to doing business, principles of Islamic jurisprudence provides the flexibility for a host of contracts, and contracting parties have the freedom to engage in various types of business transactions so long as they do not violate the moral and ethical principles of the Shariah. Similarly, this spirit of open exploration engendered by the Muslim tradition allows for various modes of financial transactions and instruments. This, I think, has been the basis behind the proliferation of Islamic financial products, services and institutions that have in turn brought about the extraordinary growth of the industry.
- In Malaysia, advanced expertise in Islamic commercial jurisprudence has, in fact, lent added credibility to the MIFC’s brand globally. As one commentator put it, Malaysia’s Muslim heritage, outward-looking nature and longstanding links with financial hubs like London and Singapore made it a natural candidate to bridge the worlds of religion and capitalism.
Addressing the Critics and Controversies
Ladies and gentlemen,
- At the very foundation of Islamic finance are its basic tenets namely the prohibition of riba, speculative transactions and the element of undue risk or uncertainty, gharar, in contractual relationships. More importantly, the policies surrounding the practice of Islamic finance subscribe to the ideals of justice, fairness, cooperation, transparency and shared responsibility. These basic tenets and principles serve as both a moral compass and a clear boundary that prevents Islamic finance from growing at a trajectory that is disconnected from the real economy. The tenets and principles can thus confer Islamic finance the status of an ethically better alternative to conventional finance.
- Upholding these claims, however, entail immense responsibility on the part of all stakeholders—from the management of financial institutions when developing products, to judges when adjucating on matters brought before them. Any deviation from Islamic principles, whether real or perceived, has the potential to damage the reputation of the whole industry.
- As the Islamic finance industry evolved—and as more and more sophisticated financial products were introduced to manage the increasing value of assets under management—Islamic financial institutions, at times, found themselves at the receiving end of criticism about how they primarily pursued profit and business-driven interests, sometimes unscrupulously, over serving the needs of society.
- Strong views were recently expressed by the Muslim Consumers Association of Malaysia that the Islamic banking and finance industry did not practice what they preached—by merely following the letter of the law, but not the spirit of Islam. Grievances have also been aired by the ulama and scholars of Islam, asserting that although some products and services may be deemed valid from a legal standpoint, their practices, however, have become similar to conventional banking in terms of pricing, interest-based benchmarks and the treatment of late payments; that financial institutions were eager to take part in profit-sharing but had little tolerance for its risk appetite; and that the marketing of a riba-free financing system was in fact a misrepresentation of ‘back-door’ riba transactions shielded behind the ‘Islamic’ label.
- It is easy for us to dismiss these disparaging remarks as mendacious and disloyal. It is easier still to remain indifferent. However, I believe that such views can serve as a powerful check and balance on our conduct as stakeholders in the industry. As we support the continued commercial success and growth of this noble industry, we need to also ensure that the authenticity of the Shariah tradition is not diluted or even undermined. There is thus a role for engagement and discourse amongst Shariah advisors, judges, the legal fraternity and practitioners to ensure that the true and noble essence of Islamic finance is at all times upheld.
- It is with this in mind, ladies and gentlemen, that conferences and the meeting of minds such as this one, organised by the Malaysian Current Law Journal and the Malaysian Bar Council, can be of great significance. Islamic finance is, after all, also known in some jurisdictions as participatory finance, and thereby advocates consultation and the exchange of ideas especially on matters of concern to the wider community. I hope this Conference will deepen the understanding of this fascinating and burgeoning industry, lead to the discovery of new insights and help catapult the industry to greater heights. With all of you at the driving wheel, I am optimistic that this will materialise sooner rather than later, Insha’ Allah.
- It with great pleasure, that I now declare the International Islamic Banking and Finance Law Conference 2016 officially open and to launch the memoirs of Tun Abdul Hamid, with the powerful words of:
Bismillahi Allahu Akbar!
- Standard & Poor’s data. ↑
- Islamic Research and Training Institute, Malaysia Islamic Finance Report 2015. ↑
- Ibid. ↑
- Narrated by al-Tirmidhi. ↑
- Quoted in Maxime Rodinson, Islam and Capitalism, trans.Brian Pearce (Austin: University of Texas Press, 1978), p 17. ↑
- The Economist, ‘Banking on the Ummah’ (5 January 2013). ↑
- Relevant literature include: Muhammad Saleem, Islamic Banking: A $300 Million Deception; Timur Kuran, The Economic Predicaments of Islamism; and Muhammad Akram Khan, What is Wrong with Islamic Economics?. ↑