A Shariah-compliant bank in Nairobi. file photo | nmg
Today, we are witnessing an emergent Islamic finance industry
with global assets of over $2 trillion and growing at around 10 per cent
per annum, taking hold in leading international markets.
There
is also a thriving Islamic capital market with issuances of
Shariah-compliant asset-based securities (Sukuk) reaching to $98 billion
in 2017. With these recent developments, it is pertinent to ask, does
Islamic finance have something to offer to non-Muslims?
The
origins of Islamic finance lie in Islamic scriptural texts that
prohibit usury (interest). However, the same maxim can also be found in
the religious scriptures of other Abrahamic religions, Christianity and
Judaism. In fact, one expert in the field had even termed Islamic
finance as ‘Abrahamic finance’.
Over the past 50 years,
a modern form of Islamic finance has emerged and expanded rapidly,
venturing into new countries with a myriad of innovative product
offerings for household and business enterprises, built upon the
traditional codified framework blended with latest international
governance standards.
In our post-millennial age, we have witnessed the growing
distrust and disdain of the traditional financial ecosystem following
the domino-like crash of ‘Wall Street market capitalism’, invigorating
an earnest interest in alternative approaches and ethical banking.
Islamic
finance has contributed to satisfying part of this new demand for
ethical financing and desire for greater financial inclusion and
socially responsible investing.
In the wake of the
2007-2008 financial crisis, the asset-based nature and profit and loss
sharing (PLS) mechanism of Islamic finance has garnered academic
interest as a model for a more resilient and stable financial system.
Its
equitable and integrated structure geared to linking finance to the
real assets and to the real economy stands in stark contrast to
conventional system where excessive mortgage securitisation and
excessive leveraging through ever-increasingly complex and abstract
financial products, unhindered by market regulators, led to a schism
between ‘Main Street’ and ‘Wall Street’.
Whilst
Islamic finance regulates against the excessive speculation, sale of
debt and development of financial abstraction, its core value
proposition is that the ubiquitous interest-bearing financial model is
inherently inequitable and in the extreme cases, more exposed to
exploitative practices by capital owners.
Too many
African countries have suffered from the over-indebtedness imposed by
colonial powers, driven by the ever-increasing burden of ‘compounding
interest’.
What commenced as a small debt spiraled out
of control to the extent that repayments were multiples of the initial
borrowing, leading some countries to enter a perpetual debt cycle and
political complaisance.
Islamic finance is intended to
be complementary to the conventional finance ecosystem, attracting
customers on premises of equitable profit and loss sharing.
Whilst
some non-Muslims will be enticed by the equitable and ethical stance of
Islamic finance, most will need to be marketed with competitive product
quality and price in order to market to the non-Muslim population.
The
experience of a UK Islamic retail bank has successfully attracted
non-Muslim customers who were attracted on ‘price and service basis’ as
the bank’s deposit saving rates were amongst the highest in the UK
market.
Simon Walker, head of retail sales at Al Rayan
Bank in the UK, said: “We appeal to both the Muslim and non-Muslim
market. Seventy per cent of customers that came to us last year were
non-Muslims.”
By embracing Islamic finance, Kenya is
on its way to benefit from greater financial inclusion from the Muslim
community, but there are also good reasons to believe that non-Muslims
in Kenya, like elsewhere in the world, will also financially benefit.
By
transcending any preconceived aversions and concerns about Islamic
finance, there is no reason why Kenya that has incubated so many other
financial innovations of our age, will not benefit more by opening up
further to Islamic finance.
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