Today we are in conversation with Almir Colan, Director at the Australian Centre for Islamic Finance. He is a prominent figure in the Islamic finance industry and serves as an advisor to Community Finance and Investment Institutions. Furthermore, he is also the CEO of Olive, an investment firm committed to an ethical portfolio in the Australian healthcare sector. Almir was previously a consultant lecturer in Islamic and Islamic capital markets at La Trobe University Australia and is also a member of a working group at AAOIFI.
This post is a part of “EthisX: The World Tomorrow “– a series of candid interviews with industry thought-leaders to foresee a post-COVID-19 world.
Join us as Almir shares his experience with the Australian Centre of Islamic Finance industry, the role Islamic finance can play in the current crisis and also has some advice for new businesses looking to adopt Shariah principles.
You can listen to the Podcast here.
You can watch the full interview here
Could you tell us a little bit about your background, what you have been doing and what you are currently focusing on today?
I am involved with and have been involved in Islamic finance. I run a centre that does consultancy and education so we also teach at various places such as institutions and so on. At the same time, I have a company that I share with a few friends focusing on investments in the Australian healthcare sector. We run clinics and are in the process of starting online health clinics here in Australia.
The Australian Centre for Islamic finance has been around for nine years now, close to 10 years which is a very long time. How has it changed since the beginning in terms of your objectives as well as your activities?
In the beginning, I think like many Islamic finance professionals, we became fascinated with Islamic finance after we learned about certain prohibitions or things of that nature. As you grow, you realize what Islamic finance wants is to embed the spirit of entrepreneurship in the community, it wants business leaders who will step up, change things or create jobs for other people. As a result, we have evolved into an organization that essentially helps people to start and run their businesses in a way that is consistent with our values and ethics. So we do a lot of things including giving advice.
All right so it’s somewhat of a business. Is it like an incubation, acceleration consultancy for businesses and startups?
Yes, it is all of that but every business is different. Some businesses might need consultations, others are already running but they want to know if what they are doing is Shariah-compliant or if it is done properly while others need help with their financial structuring of certain things. So we mainly provide consultancy advice, training and these kinds of things to encourage people to step into the arena of business and try instead of being held back by certain things. For example, sometimes people have the misplaced belief that Islam doesn’t want us to be actively working or contributing when in fact that is exactly what Islam wants us to have: an Islamic lifestyle in all aspects of our life.
I had assumed based on the name that the centre was more focused on Islamic finance education but it’s great to know that it goes beyond that. The education part I assume is embedded in the business advice and activities that these companies undertake with your guidance and support right?
That’s right. Business education can only go so far — it’s like teaching somebody to swim without putting them in the swimming pool. How much can education do and what sort of education is that? For it to be effective, people need to put what they’ve learned into action and learn from the experiences gained. This is why I run other businesses as well because it wouldn’t be fair of me to tell others to do these things and never do them myself. It’s all about doing things because when you do or try something, regardless of the outcome there is always a lesson to be learned.
Now moving on to a slightly different point, about the condition of the world today can you give some perspectives on the COVID situation? Is it something that is meant to wake humanity up? Is it something that we should look at with some despair or is it something that we should look at with hope? Please share with us your thoughts on this.
As our Prophet Muhammad (PBUH) said every situation is a blessing for the believer. It is not about the situation at all but rather it’s about how you respond to the situation. When things are going great for you in your life, you need to be grateful. At the same time, if things are not going as well as you’d like, you need to be patient in a sense of being actively patient and you have to appreciate what you have now. As there is a very deadly virus going around, the economies of the world are focusing on stopping the spread of the virus so there is a major slow down. This crisis is very different to any other financial crisis we have had. If you recall, 10 years ago when we had the global financial crisis (GFC) it affected the demand side of the economy. People lost confidence psychologically, they lost jobs and simply could not buy what was available to them.
The current crisis is different because while the economy is on pause, it is mainly from the supply side meaning it is much more difficult or expensive to produce things. Now if we look at the response of most governments, they are trying to stimulate the demand side by giving people handouts, writing checks and so on because the demand side is what is usually stimulated in a crisis. However, there is very little that the governments or anyone else can do to stimulate the supply side. As we move forward, what is critical is dealing with the underlying conditions that are preventing businesses from producing things. I think what is critical for us to do now is invest in human resources, in people’s capabilities and the relationships that businesses have with their workers to facilitate a quicker return to normalcy once the underlying issues have been resolved otherwise the current situation that produces massive levels of debt and unemployment doesn’t make sense. The only way to deal with this is to focus on the supply side of the economy. How do we get back into it as soon as we can?
I think there’s a very sharp perspective and honestly trying to stimulate demand and consumption seems to be a very blunt tool. Although the handouts may be needed for survival, survival alone is not going to get us out of this, right?
Look, I think that handouts are necessary and extremely important. There are a lot of people who are suffering and all of us whether as a society or individuals must exercise the maximum level of generosity. The most important thing to remember is that on a personal human level, generosity is the number one thing. However, don’t forget that what the government is doing is leading to more debt which will have an effect later on. So what we need to do is deal with the core underlying reasons for this crisis.
You mentioned earlier about how your institution talks to and supports businesses. Can you share with us what advice are you giving businesses and startups right now?
Just like how things are on pause and we are fasting in Ramadan, the economy is also on pause and fasting right now. So businesses should take the time to reflect on what they’re doing. Consider things from a strategic point of view like how are you competing, how are you producing, where are your supply chains and how far are they, what are you producing locally, what are we depending on from overseas and how can I be more self-sufficient in my area? Also, the number one asset you have is your people. It is very easy to lose or fire people but once things ease back to normal, how do you get those people who have the knowledge and experience back? So it is important to find a way to keep relationships with your staff. A lot of people are now investing in different kinds of training and upskilling.
Also, technology will be more in demand. In our organization, we have also started looking at technology more. We ask questions such as how do we integrate the technology we are using like zoom or other kinds of video conferencing with the technology in health clinics to bring our clients and everyone together? How do we deliver services specifically in healthcare where the patients need to see a doctor? I think this is where businesses need to have a more strategic view and understand that these new realities might become more of the norm in the future. So we need to think about what we have to do to manage that transition into the new realities of this world?
Touching on the point about your staff being your number one asset, it can be a challenge sometimes for companies with low or no cash flow to keep their people. How do you keep your people and if you lose them, then what are you left with? Different businesses will have different assets but people are always a key asset.
You know, sometimes we wonder how we are going to have this conversation with people but I think we just need to be honest, they will understand if you need to cut the hours, for example. I think that as long as there is a discussion going on and decisions are taken in the spirit of togetherness, people will be quite understanding if the company cannot afford certain things as long as we always keep that relationship with our staff in our minds.
Yes, keep things respectful, open, and honest. Now you’ve mentioned the current situation and the way things have changed, so besides technology, what else would you advise businesses to do to be more prepared for this crisis and the future?
I think one thing that businesses need to worry about right now is cash flow. You know, that’s the oxygen that can kill businesses. You might have the most profitable business but if you make commitments that are illogical, your cash flow issue can strangle your business. I notice a lot of businesses that make several commitments and end up over-committing. For example, they lease a lot of equipment, buy or lease expensive real estate or hire a lot of staff. So you must monitor your growth and cash flow because if you overcommit or start to expand aggressively, it will be detrimental to your business. Remember even if you have the greatest business, if it runs out of cash, it’s like the world’s greatest athlete running out of oxygen which cannot happen. So be mindful of your expenses, monitor them, and don’t go on buying sprees even if things are on sale and you think you need to upgrade everything.
Some of my friends were buying some businesses so we were analyzing the numbers. I noticed that the assumptions that were made were based on the last three years of performance but you should actually look at what has happened in the last three months or the last month. This is because every business will need at least a year to two years to recover from this and get back into the full swing of things; just because COVID restrictions are lifted, it doesn’t mean things will go back to normal. It will take, at least in my estimate, two years for businesses to get back to normal pre-COVID levels.
What about Islamic finance? Let’s focus on today and the future, what role do you see it playing currently and what role should it be playing or can it be playing in this new economy today?
Well, it’s been very clear to me for some time that Islamic finance must focus on producing things and solving real-life problems; this is where the essence and the focus must be. For example with COVID, what can Islamic finance do or how can it help? Well, if we were truly prepared, you would see an established healthcare centre researching vaccines or making different medications and you would have seen a factory that can change production easily to produce items needed during this crisis like masks or respirators.
We must understand that Islamic finance is connected with the Islamic economy as it is the engine of growth for the economy. The said economy must be producing things and employing people. So if we want to see something out of Islamic finance, we should start to invest in our schools. If we look at Muslims, there are 1.8 billion of us and almost 500 to 600 million of us are youths. If we want to solve things using Islamic finance as a tool, I think we need to have at least 5% to 10% of our people starting businesses and then these businesses should employ the others. We should orient ourselves, our education system and our business system together in such a way that everyone is taught how to start a business regardless of their job or career; whether you are an engineer, a healthcare worker or a psychologist, for example, you are still taught how to start a business. So out of a hundred doctors maybe five of them will start clinics or out of a hundred engineers, five of them will start companies that produce something which will provide employment for others. I think this is the reason why riba is prohibited but trade is allowed. When I say trade, I mean trade in the sense of producing things and selling them which to me is what entrepreneurship is. This is also what most of our countries have to focus on. An example of a country could be Australia and how it should look into producing things that are of higher value rather than just simple things. There should be more complex manufacturing and added value services. So it’s not just exporting the bare minimum and having small, basic manufacturing jobs.
The Islamic finance objectives that you’ve shared, I fully agree with and it relates back to the objectives of Shariah. However, getting more people to start businesses and getting them to employ more people within these new businesses, how does Islamic finance fit in?
When we started our fund (the investments), we put targets in and allocated parts of the funds. For example, a portion will go to low-risk investments while another portion goes to high-risk investments. I often ask Islamic banks, financial institutions and investment institutions how much of their funding goes to startups? How much of it goes into high-risk activities, research, or similar areas? I can see that for most of us when we manage money, we are extremely risk-averse and I believe this fear can sometimes paralyze entrepreneurs. They have to change their way of looking at business, it has to be seen as an adventure. It’s just like going hunting, for example, where you have all your tools with you and you’re going on an adventure so you don’t feel scared. That’s how we need to look at our businesses because once we get rid of that fear, we will chase after the excitement of doing things.
We have to create something similar to Silicon Valley but it should have many different areas. Having this will allow people to learn from real entrepreneurs and under their guidance be encouraged to start a business so we can slowly start to grow. It has to be very practical and connected to where the money is circulating which is an Islamic economy principle. First, let the money circulate, go to different hands and find genuine ideas. The winners should be chosen based on whether their idea is the right and best one. If we start doing this, eventually people will come up with excellent ideas which will be extremely beneficial for us since the economy feeds off these ideas in the long run.
Islamic venture capital, angel investment, microfinance and helping small businesses are very underserved areas in Islamic finance. Some people believe that’s one of the biggest shortcomings of the Islamic finance industry today. What I noticed is that some of these large institutions allocate large amounts of funds for charitable purposes whether it’s CSR or other forms of charity so they are just donating or giving these funds away. What if instead, every year 10 banks allocate $300,000 each (resulting in 3 million per year) to a program that supports startups and make it a component of equity or a zero-interest loan or for micro SMEs? Things would be structured in such a way that some or most of the money comes back to the pool before going back out again. If this can be done yearly, then that money would snowball and get recycled at the same time. This is just an idea that we’ve been contemplating but do you think this would be an easier approach because there are many hurdles when trying to push these large institutions to invest and it can be a very painful process sometimes?
I think that’s very noble and it is important to get these institutions, as well as everyone else, involved because it is, after all, everybody’s problem and future. When I think of the Islamic economy in general, I see that several points of the economy are distinct. For example, when I look at the Islamic rules regarding certain prohibitions like why are we not allowed to make money from interest or selling money but we are allowed to make money from selling things? This tells me that Islam clearly separates humanitarian or charitable types of work from other kinds of work and Islam does not want to make a profit from these areas. So the areas where we can compete and make a profit are very distinct from those where we are prohibited from doing so. In the charity/humanitarian area, you have people in need of help and they can’t help themselves so it is an exercise in generosity. While in the commercial/profit-making area, it’s about rewarding those who have the best ideas/solutions, and the help is given depends on the entrepreneurs’ business needs. Thus, I would keep these two areas separate and distinct from each other. So I would say that a lot of the dedication needs to happen on a purely commercial basis because the last thing you’d want to do is create a mismatch between sadaqah and the commercial area. It is very important for any incubator or any kind of entrepreneurial setting that ideas and businesses are chosen because they are the best. In Silicon Valley, people are not going to invest in a company purely based on their friendship with the founders for example, and so we have to also be brutally honest when it comes to these kinds of things. You can start small, organize ideas and see why this is important for our countries to grow. These days some countries like Bosnia or Turkey, for example, they’ve realized that countries need to be producing different things by themselves. So I think if we look at these successful ideas and push ourselves in that direction, we will end up with a solution that greatly benefits our economy.
I think this is a challenge sometimes that is overlooked because since the money is a charity in nature, it results in the commercial elements not being made a priority and it’s not robust enough. On the other hand, if it was an investment fund then that component would be very strong. So we need to have the mindset of managing an investment fund, even if the source of the fund or the fund is charity which can potentially create a solution right?
Absolutely. It’s very important to be clear about what you are doing at that stage. You have to think about whether you are running a business or you are helping someone because they have completely different expectations.
We have a mix of some high-level individuals or business leaders as well as a large group of young people who are trying to figure out what they can do and should be doing right now. Is there anything that you’d like to share with them?
It is very important to take this time to think about yourself and the things that you can do to help. Try to help and connect to your community and be close to your parents as well as the elderly in your community. Learn new things and be patient; understand that there’s a lot of things in life that are waiting for you. We are counting on you, the young people because you are our future. Try to learn things before you are put in a position where you need to lead others and find yourself a great mentor. Also, try to be productive and engage yourself in meaningful work. InshaAllah, the future is bright and we are counting on you.