Friday, 19 December 2014

Event Summary (KLCIF2015) - KL Conference on Islamic Finance 2015


KL Conference on Islamic Finance 2015


Date    : 17-18 March 2015
Venue : Grand Seasons Hotel, Kuala Lumpur - Malaysia

“An international gathering of practitioners, scholars and experts to discuss and share their knowledge, expertise and experience on the principles, instruments and issues related to Islamic finance, to be held at the world’s leading Islamic financial centre…Kuala Lumpur.”


Event site : www.islamic-finance-conference.net

KEY FOCUS/TOPICS:
- Product development and Implementation of Islamic financial products
- Ensuring Shariah compliance in Islamic financial instruments
- Sukuk: development, issues and challenges
- Islamic gold account: a golden opportunity
- Islamic mutual funds (unit trusts): factors to consider in making an investment
- The rise of Islamic wealth management in Islamic finance industry
- Islamic financial planning: success in both worlds
- Takaful: innovation and solutions
- Enterprise risk management for Islamic banks
- Enterprise risk management for takaful operators
- Accounting and auditing
- Human capital development in Islamic finance industry
- Legal issues and challenges in Islamic finance
- Dispute settlement in Islamic finance: issue and solutions
Islamic ethics in financial services industry
- Corporate governance for Islamic finance industry


SPEAKERS:

Speakers are selected from Islamic banks, takaful operators, academicians, legal practitioners, consultants, regulatory bodies.

Among the speakers are:


WHO SHOULD  ATTEND:
- Islamic bankers/bankers
- Takaful/insurance operators
- Regulators
- Head of governmental departments
- Financial planners/wealth advisors
- Financial consultants
- Legal practitioners (lawyers)
- Academicians (lecturers)
- Entrepreneurs (businessmen/importers/exporters etc)
- Other professionals 

REGISTRATION:
Early Bird Fee: 
Registration with payment by 17 February 2015
Malaysian   :  RM1,500
International  :  USD600

Normal Fee:
Registration with payment after 17 February 2015
Malaysian  :  RM1,800
International  :  USD700
Special fee for Malaysian university lecturers :  RM1,000 (group discount not applicable)

Fee is inclusive of lunch, refreshments and seminar package only.


Group Discount:
Enjoy 20% discount for third and subsequent delegates registered from the same organisation and the same billing source.


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ORGANISER


VENUE


Grand Seasons Hotel, Kuala Lumpur - Malaysia

MEDIA PARTNERS


Kuala Lumpur


Lahore

Indonesia Project Sukuk Plan Sees Fivefold Rise

Indonesia is ramping up financing for new President Joko Widodo’s $439 billion development program, planning an almost fivefold increase in sales of project sukuk.
The government is seeking to raise 7.14 trillion rupiah ($568 million) from notes that will fund particular construction ventures next year, compared with 1.5 trillion rupiah this year, Suminto, Islamic financing director at the debt management office, said in a Dec. 12 interview in Jakarta. That will help finance its estimated spending of about 5,519 trillion rupiah from 2015 to 2019 to build roads, railways and power plants.
Indonesia is diversifying its sukuk to help increase Shariah-compliant banking assets as a share of the total from 4.7 percent, less than a fifth of Malaysia’s. The Southeast Asian nation can absorb the new supply as there’s not enough local Islamic investments to satisfy demand, so the currency’s 3 percent slide this year won’t deter buyers, according to Amanah Capital Group Ltd.
“We expect large portions of the sukuk to be subscribed by local Indonesian banks and institutions,” Abas A. Jalil, chief executive officer at Kuala Lumpur-based consultant Amanah Capital, said in an e-mail yesterday. “Sukuk investors always have long-term views in their investments and the weakening trend of the rupiah isn’t an isolated case.”

Plunging Rupiah

The currency dropped to a 16-year low this week as a slump in Russia’s ruble to a record sparked global financial turmoil. Russia is reeling under sanctions imposed by the U.S. and European Union for its invasion of Ukraine and a six-month, 47 percent drop in crude oil, cutting revenue for the world’s biggest energy exporter.
President Widodo’s development plan includes the construction of 30 dams, 33 hydroelectric power stations, 2,650 kilometers (1,647 miles) of roads, 15 airports and 3,258 kilometers of railroads in the provinces of Java, Sumatra and Kalimantan. Projects approved by the National Development Agency include a railway in Manggarai-Bekasi in Jakarta, the Cirebon-Kroya railway in West Java and a coal transporting railway in southern Sumatra, said Suminto, who like many Indonesians goes by one name, at the debt management office.
Indonesia, the world’s biggest Muslim nation, issues both project-based and project-financing sukuk. Suminto explained that funds raised from the former go toward the state budget and not a specific venture like the latter.

Diversifying Funding

The government sold 800 billion rupiah of project-financing sukuk in 2013, Suminto said. Worldwide sales of Islamic bonds climbed 6.3 percent to $45.3 billion this year, according to data compiled by Bloomberg. They totaled $43.1 billion in 2013 and a record $46.8 billion in 2012.
“Indonesia is looking to diversify its financing through various channels such as foreign currencies and Islamic financing to attract more varied investors,” Ezra Nazula, head of fixed income at PT Manulife Aset Manajemen Indonesia in Jakarta, said in a Dec. 15 e-mail. “More issuance would mean better liquidity overall and that would bring new investors and develop the Islamic finance industry.”
Indonesian bonds dropped 1.3 percent in the first three days of this week and the rupiah has fallen 0.9 percent since Dec. 12, a Bloomberg index shows. In the Islamic debt market, the yield on the nation’s 6 percent sukuk due in 2016 rose two basis points today to 7.55 percent and is up 19 basis points so far this week, according to data compiled by Bloomberg.

Growth Catalyst

The country needs to increase spending on building projects to 4.4 percent of gross domestic product by 2019 from the current 2.5 percent to avoid growth stagnation, according to a May report from the World Bank.
Southeast Asia’s biggest economy will expand 5.1 percent in 2014, the slowest pace since 2009, according to the median estimate of 29 economists in a Bloomberg survey. The nation’s current account has been in deficit for the past 12 quarters, making it vulnerable to capital outflows as the global turmoil deters risk-taking.
“Investors would see the new government’s initiatives to boost infrastructure as the catalyst for economic growth in the next five years,” Amanah Capital’s Abas said. “Local demand by Indonesian banks for government Shariah-compliant instruments shall remain strong.
(Bloomberg / 18 December 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Thursday, 18 December 2014

Islamic banking in Oman likely to grow at double-digit rate

Islamic banking in Oman is expected to grow at double-digit rates as Sharia-compliant banking products increasingly gain acceptance and the government's plans to ease restrictions come to fruition.

Launched in 2012, Oman's nascent Islamic banking segment saw assets surge more than five-fold to OMR1.1 billion ($2.86 billion) at the end of the second quarter of 2014, according to a study by Thomson Reuters. 

The sector, which comprises two dedicated Sharia-compliant lenders and six commercial banks with registered Islamic banking windows, currently represents more than 4 per cent of Oman's total banking assets, but this may increase to 10 per cent by 2018 if the best-case scenario for asset growth is achieved. Under a base scenario, the study estimates Islamic banking assets could reach OMR5 billion ($13 billion) by 2018, a 7 per cent share of estimated total assets. 

Sharia-compliant tools
However, such a formidable growth rate may require further regulatory assistance according to the study published in October and carried out in conjunction with a number of Islamic financial agencies. In particular, it identified the need for Sharia-compliant liquidity management instruments to open up the interbank market. Regulations currently ban the use of commodity murabaha, a money market contract widely used elsewhere in the Gulf.

Hamood Sangour Al Zadjali, executive president of the Central Bank of Oman (CBO), said the government was moving to respond to market calls to relax some of the existing restrictions and had set up a taskforce to develop Sharia-compliant liquidity management tools. He added that the banks needed to expand their product range. 

However, new products bring challenges for the sector, said Lloyd Maddock, chief executive officer of ahlibank, a conventional lender that offers Islamic banking services, such as lack of product awareness and employee expertise. 

"Islamic banking is still in the early stages in Oman," he told OBG earlier in the year. "While there is considerable demand for Sharia-compliant products, primarily from retail borrowers, the sector faces challenges, including the training of bank employees and explaining the propositions to the populace."

Rise in assets
Despite growth in the sector, Islamic banks still need tools to help them manage their funds and ensure profitability. The two Sharia lenders, Alizz Islamic Bank and Bank Nizwa, announced increases in assets and earnings this year, but recorded overall losses. 

Alizz Islamic Bank said total income more than doubled in the nine months to September-end, while it posted an OMR4.4 million ($11.4 million) loss, which it attributed to high expenses in the period due to the opening of branches.  Bank Nizwa said assets in the 12 months to September-end rose 49 Islamic Bank to reach OMR257 million ($667 million) year-on-year, while the group's net loss decreased by 49 Islamic Bank in the same period.

However, conventional banks are starting to gain traction in the Islamic sector. The Islamic unit of Oman's largest lender, Bank Muscat, was the only operation to post profits in 2013, while its sharia-compliant unit will float the country's first sukuk, or Islamic bond, announced in October.  BankDhofar said its Islamic unit had moved into profit in the nine months ending September 30, albeit the slightest of profits at OMR10,000 ($26,000) profit, but still a significant turnaround from the OMR1.31 million ($3.38m) loss a year ago.

SMEs highlighted 
Within Islamic finance, lending to small and medium-sized enterprises (SMEs) is identified as a key sector for growth. According to some estimates, more than 90 per cent of all registered firms in the sultanate fall into the SME category, although their combined contribution to the economy is only 15 per cent. 

The central bank governor said SME lending has become an important focus for policymakers: "To encourage lending to SMEs, the prudential requirement for banks to lend to SMEs have also been relaxed in terms of general provisioning requirements and risk weightage," he told OBG. "Islamic banking entities, by their business philosophy itself, should find SME finance more attractive," he added. 

Jamil El Jaroudi, chief executive officer of Bank Nizwa, echoed this sentiment, noting that smaller enterprises represented a strong market for Islamic banking, calling for greater support of the SME sector. 

Government plans to bolster the SME sector, through incentivising small businesses to take part in major infrastructure programmes, means there may be a ready market for sharia lenders.  The Islamic finance sector will also benefit from overall growth in the banking sector, with credit growth set to rise as real estate and non-oil sectors gain momentum. With bank deposits and liquidity levels rising, lenders in Islamic and conventional banking will be well positioned to accommodate the increased demand for finance.

(Times Of Oman /17 December 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

With Oil’s Slump, Gulf Nations Seen Turning to More Sukuk

The almost 50 percent plunge in oil this year is set to unleash a wave of Islamic bond sales as Gulf Cooperation Council nations seek to compensate for slumping revenues.
Sukuk issuance across the region in 2015 will surpass this year’s $14.8 billion, according to Emad Mostaque at Ecstrat Ltd. The 2014 figure is the lowest in three years, data compiled by Bloomberg show. The Gulf states may sell sukuk to help meet planned expenditure, including to fund infrastructure projects at home, said John Sfakianakis, Middle East Director at Ashmore Group Plc.
With Saudi Arabia and Qatar planning more than $700 billion of spendng during the next seven years, boosting sales of sukuk will help compensate for oil prices that are about 25 percent below the $80 a barrel the International Monetary Fund says governments in the region need to balance their budgets. The six-nation GCC includes four members of OPEC, which supplies 40 percent of the world’s oil.
“There will have to be a balance between spending and debt issuance in order to cover for a lot of the capital and current expenditures,” Sfakianakis said by phone from Riyadh on Dec. 16. “It’s reasonable to expect sovereign debt issuance to increase in 2015 across the board.”

Growing Pressure

Brent crude, used as a benchmark for more than half the world’s oil, fell 0.5 percent to $59.56 per barrel at 9:30 a.m. in London, the lowest on a closing basis in more than five years. It may decline to $50 a barrel in 2015, according to a Bloomberg survey of 17 analysts.
Islamic bonds from the GCC, which comply with the religion’s ban on interest, account for more than a quarter of all sales in a market worth about $310 billion, according to data compiled by Bloomberg. Dubai, Qatar and Bahrain are regular issuers.
“Sovereigns in the GCC may increasingly rely on sukuk as a means to support government funding at a time of decreasing oil revenue,” Jonathan Fried, capital markets partner at law firm Linklaters LLP in Dubai, said in an e-mail yesterday. Linklaters advised the Luxembourg government on its debut sukuk sale earlier this year. “There is an ever-growing demand for sukuk products in the GCC.”
That hasn’t stopped yields climbing as oil prices collapsed. The yield on Shariah-compliant bonds from the Middle East jumped 14 basis points last week, the steepest increase since August last year, according to JPMorgan Chase & Co. indexes. That compares with a 22 basis-point decline in the benchmark 10-year Treasury.

Susceptible to Oil

“In the short term, I don’t think there will be any noticeable impact on any of the governments’ strategies,” Thomas Christie, the head of fixed income at Prometheus Capital Finance Ltd., a Dubai-based investment advisory company, said by phone on Dec. 15. “If the oil price continues in the downward trend, in the long term, in the next five years,” there may be an impact to sales, he said.
Bahrain and Oman will be most susceptible to lower oil prices and are likely to issue sovereign debt to finance their fiscal deficits, according to a Moody’s Investors Service report last week. The ratings agency said earlier this year the sovereign sukuk market will reach about $30 billion globally in 2014, and it expects growth to continue in 2015.
Bahrain Mumtalakat Holding Co., the country’s sovereign wealth fund, sold a $600 million sukuk last month. Oman’s Central Bank head Hamud Sangur Al-Zadjali said in October the country may sell 200 million rials ($519 million) of Islamic bonds next year, its debut sale.
While “less resilient” GCC states with fewer fiscal buffers like Bahrain and Oman are likely to issue, “all of them should see an increase in sovereign debt issuance over the next year or two,” Ashmore’s Sfakianakis said.
(Bloomberg / 17 December 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Monday, 15 December 2014

Follow Islamic finance path in reforming Islamic law, says scholar

Systematic Islamic law reform is possible, similar to the development and advancement achieved today in the field of Islamic finance, a forum was told today.
Asserting that Islamic law has been changing all along, University of British Columbia assistant professor of Islamic Law Dr Rumee Ahmed said it was no different from the Islamic finance sector, which would have been unrecognisable 50 years ago.
"This seems to violate lots of principles in the Islamic tradition and in the Quran and Sunnah.
"But Muslim scholars got together and redefined the terms of Islamic law so that today someone can have their Islamic credit card and feel they are operating in a world where using that card will help them achieve salvation," Rumee said, drawing laughter from the floor.
As such, he said that there was a need to look into Islamic law reform seriously, which should include the issues of amputation for the crime of theft and gender-based laws.
"There is nothing wrong with the Quran and the Sunnah but there is something different about the way we apply them today," he said at the public forum entitled Domestic Violence and the Islamic Tradition, held in Kuala Lumpur.
Rumee added that currently, gender was the biggest challenge to systematic Islamic legal reform because of the differences in gender-based Islamic law that covers prayer, inheritance, leadership, dress code, marriage and divorce among others.
He also said that while Islamic reform would sound wrong to the ears of some Muslims, the fact was it did not change the Quran or the Sunnah.
"Only the laws which were interpretations of the Quran and the Sunnah," he said.
"Muslims scholars get their legitimacy and authority from the fact that they uphold the law but they need us to help them uphold the law.
"The reality is Muslim scholars are representing less and less Muslims, nobody is listening to the ulama," he added.
Rumee said that the consensus was that laws enshrined today violated modern notions that Muslims hold about human dignity and human rights.
As such, he said that it was possible to come up with a different interpretation of the Quran and Sunnah as Muslim scholars have done it in the past.
He said that right now, the readings that are authoritative are very narrow readings of the Quran, the Sunnah and Islamic law, and do not represent the views of general Muslims.
As such, he hoped to come up with a new language where Muslims who are like-minded can get together and flesh out new arguments on Islamic law.
"If Muslims come together and have this shared language, they could push for new interpretations.
"The ulama represents this small strand, but they are strongly influenced by social factors. For example, the reason Islamic finance had such a big push is because there is money involved.
"And if Muslims are pushing at that same level that happened for finance and even slavery reform, they can gain authority by promoting certain interpretations," he said, adding that he was in the midst of coming up with an app where Muslims can propose law reforms.
Ratna Osman, executive director of Sisters in Islam, which is the forum organiser, said that while religious scholars refused to budge from Islamic tradition on issues pertaining to the relationship between husband and wife for example, they have broken away from tradition when it came to Islamic banking.
"We know that happened because the push was fueled by monetary gain.
"But whatever not related to 'Ringgit Malaysia', the ulama will say it cannot be changed.
"And so they stick to medieval definition when it comes to marriage, where the women are supposed to obey their husbands as he is their ticket to heaven. These things cannot change apparently," she said.
The second speaker, Dr Ayesha Chaudhry, University of British Columbia's assistant professor of Islamic studies and gender studies, said that Islam never says anything, adding it was Muslims that said things about Islam.
"Islam is not a person, you cannot go to lunch with Islam.
"Muslims are the ones saying many different things about Islam," she said.
Chaudhry added that while Islamic tradition was vast, complex and sophisticated on many other issues, it was not so when it came to issues related to gender.
"So we need to expand the way Muslims think about Islamic tradition to include the modern conversations.
"Because, if we expand the definition to include Islamic conversations, we add richness and complexity to the tradition in areas that was lacking in the pre-colonial period," she said.
She added that it was her opinion that progressive and reformist scholars were speaking authentically about Islam today.
Chaudhry also said that in Islamic tradition, the right of husbands to physically discpline their wives was considered a fundamental marital right.
She said there was authoritative dilemma in this area, however, where a traditionalist would say that it was ethically good to hit one's wife for disciplinary purposes while progressives and reformists argue that it was never good to hit one's wife, not even symbolically.
"Why can't Muslim scholars agree that it is categorically forbidden for husbands to hit their wives in any or all circumstances?
"I think that any law, be it  religious or secular, which preserves human dignity, is best," she said.
Meanwhile, Ratna said that SIS had come across many Muslim women who related to them how the religious authorities would tell them to be patient when they complained about domestic violence.
"These women were told by the Islamic Department that their husbands beat them because they were not good wives, so they were advised to speak to their husbands nicely if they wanted the beatings to stop." she said.
(The Malaysian Insider / 13 December 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Sunday, 14 December 2014

Indonesia: Govt to issue Rp 7.1 trillion project-based ‘sukuk’


The government, via the Finance Ministry, plans to issue Rp 7.14 trillion (US$570.9 million) worth of project-based sukuk (Islamic bonds) next year to finance the development of three infrastructure programs as well as trigger the growth of the debt paper market.

The amount of issuance for the sukuk will be allocated in the 2015 revised state budget as part of the state’s financing, according to Suminto, director of Islamic bonds at the ministry’s debt management office.

The government plans to discuss the 2015 revised state budget earlier next year with the House of Representatives, which will change the previously approved Rp 2,039.5 trillion in the 2015 state budget.

Suminto said infrastructure projects would be used to finance the continuation of the so-called “double-double track” railway developments of Manggarai-Jatinegara in Jakarta and Jatinegara-Bekasi, the construction of a haj boarding house in Medan, North Sumatra, as well as road widening in eastern Indonesia.

“The haj boarding house construction is a project under the supervision of the Religious Affairs Ministry, while the Transportation Ministry is supervising the railway projects and the Public Works and Public Housing Ministry is covering infrastructure plans in eastern Indonesia,” he said in Jakarta recently.

Suminto acknowledged the amount was rather small for a number of infrastructure projects due to their construction sizes as planned by the National Development Planning Board (Bappenas).

However, Suminto said the government had yet to decide the sukuk maturity and coupon rates.

Next year’s total revised amount of issuance is higher than the previous plan of Rp 6.9 trillion stated in the 2015 state budget.

In February, the government issued Rp 1.57 trillion in project-based sukuk to finance the development of double-track railways on the second section of the Cirebon-Kroya route in West Java and from Manggarai, Jakarta and Bekasi, West Java as well as the revitalization of haj boarding houses.

The sukuk, which had a maturity of 10 years and a coupon rate of 9 percent, was part of the government’s sukuk issuance target for this year, worth Rp 60.37 trillion.

According to the ministry’s data, the total outstanding sukuk reached Rp 205.4 trillion between 2008 until Nov. 18 this year. As many as 83.4 percent of the amount is tradeable, while the remaining 16.6 percent is non-tradeable.

Sukuk comply with Islamic principles. Bondholders have a share in the ownership of tangible assets that act as collateral. Different from conventional bonds, which do not offer ownership in certain collateral, sukuk offer bondholders profits from interest rates paid by issuers.

Indonesia continues to lag in sukuk market development, with government sukuk only accounting for 9.2 percent of total bonds issued by the Finance Ministry this year, data from the Financial Services Authority (OJK) shows.

Suminto said the government would always support the development of the sharia financial market, of which sukuk was a part.

“The development of sukuk will always be in parallel with the whole sharia industry in this country, including in the banking, insurance and mutual fund sectors,” he said.

Indonesian Government Bond Traders Association (Himdasun) chairman Sarwadi said the group saw that the level of liquidity for sukuk in Indonesia was lower than conventional levels, especially for maturities above three years, due to the minimum volume in the domestic market.


(The Jakarta Post / 13 December 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance: in a paradigm of transition

Total assets within the Islamic finance sector are currently worth $1.8 trillion, and Ernst and Young has predicted this figure to grow to $3.4 trillion by 2018.[1] In the post-financial crisis era, many conventional banks, economists and depositors have been inspired by the moral and ethical foundations of Islamic finance, which seem to be absent from the conventional banking system. 
Yet, the discourse about Islamic finance tends to fall into a few false dichotomies: the first is whether it conforms to capitalism or Marxism; the second asks whether it merely masks interest (usury/riba) with Arabic jargon i.e. still conforming to the current system or whether it is a fully interest-free system that is a radical departure from the capitalist system. This discourse is narrow-minded at best, as it reduces Islamic finance to the standards set by capitalism or Marxism, both of which can take many forms and both of which are features of modernity.
These arguments tend to marginalize Islam as a legitimate epistemology which uses the shari’ah to measure the credibility of Islamic financial practices. Furthermore, the current discourse claims that Islamic finance can only be credible if it were to create financial and social utopia, and, if it does not do this then it is entirely illegitimate; a standard nonetheless which capitalism has not achieved. Those who hold these extreme positions have so far stifled substantive discussion regarding the current practice within the industry, and, whether or not Islamic finance provides any benefit in an era of western globalized financial practices. Furthermore, these readings of the legitimacy of Islamic finance are ahistorical; they do not take into account the struggle of former colonies to gain economic independence from neo-colonial institutions.
We must not only analyse the legitimacy of Islamic finance based upon the standards set by the shari’ahbut also through a postcolonial lens. For, this is the first time since the colonial period that an epistemology from the global south is manifesting itself on the global stage and is offering some solutions to the modern project. [5]

Modernity

Western modernity as a paradigm is predicated upon particular principles that emerged out of experiences within central and western European nations between the sixteenth and eighteenth centuries. This paradigm constitutes the current hegemonic power structure perpetuated by core countries in the west with regard to peripheral countries in the global south.[6] The paradigm of modernity is a globalized western localism: the globalization of uniquely western local practices, which marginalized other epistemologies as it has encroached onto the global south.
But modernity is neither as neutral nor as objective as it claims. This is the insidious element of modernity: it marginalizes other epistemologies yet claims to be universal, rational and objective. The hegemonic conventional financial system is a product of modernity that by its very nature marginalizes those who do no accept its principles: an interest based, profit maximizing system that is now based on fiat currency (the regime of managed flexibility). Beyond the physical colonization of the global south that led to the opulence and wealth of the west being created out of the exploitation of raw materials and labour in the global south,[7] colonization went hand in hand with the epistemicide of other intellectual traditions – perpetuated by both liberal capitalist and Marxist thinking.[8] As western economic power erodes due to a re-centering of the global economy, the intellectual assumptions that have underpinned western modernity will begin to be contested as well.[9]

Pillars of modernity

The paradigm of modernity is based upon two pillars: the first is the pillar of regulation, the second is the pillar of emancipation. Modern regulation is the set of norms, institutions, and practices that attempt to guarantee the stability of expectations. They do so by establishing a politically tolerable relationship between present experiences on the one hand, and expectations of the future on the other.[10]
The pillar of regulation is comprised of three principles: the principle of the state (Hobbes); the principle of the market (Locke and Smith); and, the principle of the community (Rousseau’s social and political theory). It was thought that these principles could be used to regulate the animal nature of humanity, and to prevent life from being nasty, brutish and short.[11]
The pillar of emancipation (Weber’s logic of emancipation) is also comprised of three principles: aesthetic emancipation– expressive rationality of the arts and literature; cognitive emancipation – instrumental rationality of science and technology; and, moral emancipation – practical rationality of ethics and the rule of law. [12] Modernity is allegedly grounded on a dynamic tension between the pillar of regulation and the pillar of emancipation.[13] 

Failures of modernity

It can surely be unequivocally stated that modernity as a global project has failed to achieve its goals. The promises of greater equality, liberty, peace and harmonious existence with nature have failed on a grand scale.
The promise of equality
 This was made possible by the conversion of science into a productive force, yet in the twentieth century more people died of hunger than in any of the preceding centuries. Based on UNDP data three decades ago, people in wealthy nations were 30 times wealthier than those in the countries containing the poorest 20% of the world. By 1998, this gap had widened to 82 times.[14]
The promise of liberty
The prison population continues to rise globally with the United States of America having over 2 million citizens in prison, leading the world in incarceration rates and in prison populations.[15] In 2011 UNICEF reported that over 150 million children aged between 5-14 are involved in child labour.
The promise of perpetual peace (Kant)
In the eighteenth century, 4.4 million people died in 68 wars; in the nineteenth century, 8.3 million people died in 205 wars; in the twentieth century, 98.8 people had died in 237 wars by 1990.[16] We have not progressed towards a more peaceful society.
The promise of the domination of nature and its use for the common benefit of humankind has led to an excessive and reckless exploitation of natural resources; ecological catastrophe; nuclear threat; the destruction of the ozone layer, and the emergence of biotechnology, genetic engineering and the consequent conversion of the human body into the ultimate commodity. Modern economic growth has led humanity to a precipice – one that we have never faced in the past. Yet, the final crisis of modernity is an epistemological crisis rather than a social crisis. Here we enter into a paradigm of transition. As modernity collapses as an epistemological and cultural project, a range of possible futures for societies is opened up.

Celebratory post-modernism

Celebratory post-modernism is the belief that modern problems have modern solutions. An example of this belief is that the current ecological crisis will only be solved by the continued use of the emancipatory potential of science and technology. There are various forms of this argument, ranging from those who believe a different form of modernity will provide the necessary solutions, to those who believe that it is with more intensity that modernity will be able to produce the solutions. The most famous proponent of celebratory post-modernism is Habermas, for whom modernity is an incomplete project that must be fulfilled.[17] This is similar to dealing with the issue of global inequality between the global north and global south, when it is often argued that continuing the current process of capitalism will lift millions from below the poverty line and will be able to close this gap. As mentioned above, this has not happened. So where does that leave us?

Oppositional post-modernism

Opposition post-modernism is a concept developed by legal theorist Boaventura de Sousa Santos. According to this theory, it is possible and necessary to think of social regulation and emancipation beyond the limits imposed by the paradigm of modernity.[18] He states that, ‘it is as important to acknowledge the historical and political actuality of the modern problems, as the impossibility of finding answers for them in the paradigm of modernity.’ [19]According to oppositional post-modernism, there are modern problems with no modern solutions. Here lies the transitional nature of our time. The paradigm of modernity may contribute to the solutions we look for, but it can never produce them. Therefore, furthering the principles of modernity will not solve these problems. Rather, we must use alternative epistemologies to find new principles to create new solutions.

Paradigm of transition

The failures of modernity to achieve its goals and the imaginative limitation of its epistemological underpinnings have brought us towards a paradigm of transition. Obviously, transitional periods are difficult to define and often contradictory in nature, which leads to a simplistic rejection of its emancipatory potential - this is intellectually negligent to say the least. Paradigmatic transitions last several decades, often taking more then a century to develop themselves, as was the case for the scientific revolution or the transition from feudalism to capitalism in Europe. The collapse of modernity as an epistemological and cultural project opens up a range of possible futures for society – and one of these, I want to argue, is Islamic finance.

Islamic finance in a paradigm of transition

The fact that Islamic finance functions within a paradigm of transition does lead to some difficulty in assessing its legitimacy and its potential for achieving what it claims it can achieve. However, Islamic finance does not function outside the spatial and temporal modes of modernity. There is not an Islamic world and a separate modern world. Modernity is interconnected with the rest of the world as part of the globalized hegemonic power structure. Therefore, as the hegemonic conventional financial system has moved towards neoliberal market-led growth since the 1980s, with increasing focus on generating alternative revenue streams from emerging markets in a post-financial crisis era, this must effect the modus operandi within Islamic finance. It is necessary that we contextualize and place Islamic finance within the larger political-economic system in order to prevent us from abandoning ship right after we have set sail. For Islamic finance too has its problems. The current narrative within the industry amongst Muslims and non-Muslims alike is that Islamic finance is failing due to a lack of religious conviction on the part of shari’ah scholars and/or the failure of Islam to provide a tangible alternative to the existing order.
Nevertheless, in the post-financial crisis era we are seeing a renewed interest in Islamic finance from the conventional sector and the global south, which is going beyond trying to merely generate alternative revenue streams. There are serious discussions regarding whether the principles of Islamic finance would be able to sustain a more equal economic and social order. Recently, Mufti Muhammad Taqi Usmani, arguably the most influential Islamic finance scholar, spoke at the World Economic Forum in Davos on ‘causes and remedies of the recent financial crisis from an islamic perspective.’[20] This is an acknowledgement of the legitimacy of Islamic finance, but also of Islam as an epistemology that can used to construct new paradigms of social interaction.
The basis of Islamic finance is of course, the shari’ah, which provides the epistemology to produce new constellations of our understanding of property rights, environmental rights, economic systems and business transactions. Perhaps the most important pillar of the shari’ah in a post-financial crisis era is that ethics and action cannot be compartmentalized. It is this basic requirement of Islamic finance - the social good of society - that is considered a radical and refreshing stance in stark contrast to the nature of the current financial system, which has grown to astronomical figures, yet has left more people with less.
The shari’ah encompasses a comprehensive cosmology that provides guidance for all aspects of human life with the understanding that humanity is interconnected with the oneness of god (tawhid). Muslims believe that this is a god-created universe, and that every aspect of it reflects the unity of the divine, including the creation of human being. It is argued that tawhid ‘manifests itself into ritual devotion and personal piety, in theology and law, in politics and economics, in faith and deeds, all of which are manifestations of the same all-pervasive principle.’[21]

Conclusion

The industry is within its infancy and has developed largely from post-colonial Malaysia. For this reason, even though Islamic bonds (sukuk) were issued during the reign of the Ottoman empire, the first modern sukuk was issued in Malaysia by Shell MDS in 1990.[22] The current sukuk market has only existed for 20 years at most, in comparison to the conventional bond market that has had at least a hundred years development in human capital, institutions and academia. The future of the industry will be based on continuing the development of the many disciplines within Islamic finance and economics.
Both industries are attempting to manifest their true beliefs and achieve their ideals while working within a paradigm of transition. The failures of modernity as an epistemological and cultural project has allowed for the development of Islamic finance and economics to develop within a paradigm of transition. No one is entirely sure if the industry will achieve its goals or the direction in which it might lead us, but this is the nature of living within a paradigm of transition. The opportunity presented within a paradigm of transition is that societies from the global south can attempt to manifest their beliefs arising from their own epistemology, while evolving the agency to manifest their destiny on their own terms.
(Open Democracy / 13 December 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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