The pricing for the $1 billion Dana Gas Sukuk issuance in the UAE, for instance, had to be delayed from July 2007 to October 2007 because of the impact of the credit crunch. Several GCC IPOs have similarly been delayed because of uncertain investors, Arab News reported. Islamic finance as a sector, despite its separate faith-based ethos, is not immune to the impact of the vagaries of the global financial system. It clearly cannot operate as if it were oblivious to what is happening in the conventional financial system. On the contrary, the cooperation and co-existence of the two systems is now the norm as pioneered by the Dual Banking Model of Malaysia.
Market growth of Islamic finance has been variously projected between 20 percent and 40 percent per annum. However, the absence of reliable data due to the lack of empirical research should precipitate caution, especially of those who like to talk up the sector beyond normal expectations. Growth per se is not an adequate indicator of the health of the sector. Talk of an estimated market size of over $500 billion and the existence of over 400 Islamic financial institutions worldwide, is meaningless if the impact of Islamic banking operations on the lives of millions of lay Muslims and the economies in which they live, is marginal.
At the World Islamic Banking Conference in Bahrain in December 2007, Adnan Al-Musallam, the chairman of The Investment Dar (TID), warned, “Islamic bankers need to be aware that we serve not only our shareholders and the bottomline, but a host of other stakeholders. This is what separates Islamic banking from Riba banking. Muslims too should not be asked to pay a premium for their religiosity. As such, cost of transaction, pricing, competition and service quality are just as important in the Islamic banking ethos as Shariah compliance, corporate governance and management ethics.” Al-Musallam was highlighting one of the core challenges facing Islamic finance in the coming year and beyond.
A new generation of Islamic bankers – highly educated, market savvy and oozing with creative energy and confidence – are determined to change the mindset of the Islamic finance industry from “Shariah-complaint” to “Shariah-based”. This is happening from New York to London to Bahrain and Dubai and Kuala Lumpur. This augurs well for the future of the sector, although some of those involved in the sector, whether Muslim or non-Muslim, remain cynical about such a change in mindset. But it raises the fundamental question whether Islamic finance should be integrated into the global financial system or whether it should co-exist as a parallel system of financial management, cooperating but not
interacting with the wider conventional system.
Al-Musallam does not favor integration. He evokes here the relevance of the concept of “Tawhid” (an overall vision, understanding and distinctiveness) in the Islamic economy. This, he advised, is created through a free market and widespread ownership of productive capital, bringing economic efficiency and establishing a direct connection between money supply and the real economy. Indeed, the development of money as a separate commodity rather than a measure of “economic capital”, he warned, “has brought about a state of confusion in the global financial system where the purchasing power of people is decreasing even though earnings in terms of “money” are increasing due to wage inflation.
Islamic finance on the contrary brings discipline in the market by promoting the use of money as “capital” and availing it to entrepreneurs to bring efficiency and true returns to the providers of capital. “Many of the new generation of Islamic bankers believe that such a shift towards “Shariah-based” financing could contribute towards a revolutionary change in the global financial markets.