We are delighted to have Daud Vicary with us today – Managing Director of DVA Consulting Sdn. Bhd and the former President and Chief Executive Officer of INCEIF, The Global University of Islamic Finance. He is a partner for Gateway Global, a leading Shariah-compliant professional advisory firm. Daud is active in advisory around financial services, Islamic Finance, entrepreneurship, social impact finance, and education. A frequent speaker and commentator on matters relating to Islamic finance, he has co-authored a book on Islamic finance entitled “Islamic Finance: Why it makes sense”. The discussion will touch on his background, what he is currently working on, Islamic finance, fintech, how COVID has affected our society, plans for the future as well as his advice to young people today.
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.
Listen to the full Podcast here.
Watch the full interview here
Can you introduce yourself and share a bit of your background for those who are not familiar with you?
My career has been a mixture of conventional finance, Islamic finance, consultancy, and advisory but more recently, I was the President and CEO of INCEIF when I retired in 2017. I have been running my own advisory company for a number of years and when I retired I focused more on it, spending quite a bit of time advising companies. Ethis Group is one such company and I’ve also acted in an advisory capacity for other fintech startups, not just in Malaysia but also in the Middle East and the UK. In addition, I am a partner for Gateway Global which is the only Shariah-compliant professional advisory firm.
Can you share how things have been since COVID-19?
I work from home so although I am not that technologically savvy, I was pretty familiar with Skype and Zoom beforehand. Now, of course, that has accelerated and I do 2-3 times more calls than I used to.
There are two things that have really changed in my opinion. Firstly, there has been more communication through electronic mediums. Previously, conversations through these mediums were mainly limited to catch up or management calls but now, I have noticed that there is an increase in what I would call ‘insightful groups’ that have been stimulated by the crisis and an exchange of ideas. I have been asked to participate in a number of these group calls that were developed by the organizations that I am associated with such as the Responsible Finance and Investment Foundation, the United Nations, the World Bank, and so on. Secondly, I’ve noticed that partly because of the COVID situation and partly because we are in Ramadan, I tend to reflect quite a bit and have more clarity of thought because my body is not processing food. Thus, one of the benefits I’ve had since this started is being able to be more engaged in some of the writing that I do to exchange news and views. These are two things that I’ve noticed in particular.
Besides that, I would also like to share something that I’ve been working on with a lawyer in the US who was very close to the former head of the Federal Reserve, Paul Volcker which is about how we measure the impact of social and human capital on a balance sheet as opposed to simply looking at the accounting aspect. In addition, I’ve been involved with a fintech company that is headquartered in the Netherlands but is actually run by Saudis and the company looks at digitized assets as an alternative to using Fiat currency.
In general, what has happened is that more people are paying attention to new solutions as a result of the crisis. There is a greater willingness to listen to ideas and what was considered as lunatic ideas just 3 months ago are no longer considered as such which I find to be very stimulating. There is a great deal of collaboration as well as an exchange of thoughts happening and as someone who has practised and been involved in Islamic finance for nearly 30 years, I am impressed with the level of attention that we are getting from the Muslim world with a real interest in the social finance side of Islam.
For most of us who are not involved in higher-level discussions, it can seem as if there is nothing much happening in Islamic social finance except for donation drives, so could you share some of the significant things that you see are changing in this area?
I think that people have to think about things in different contexts and these are short-term, medium-term and long-term. In the short-term, the focus should be on fixing the core which is the health issue and people being able to make a living as well as balancing between these two issues. This period will range from 1 to 6 months and there have been many discussions around the world on how to solve these issues.
Secondly, in the medium-term which can be range from 6 months to 5 years will see us managing the shift in playing fields and adapting to whatever the new normal is because there will be no return to our current normal. During this period of improving the economy, there will be lively discussions with regards to what Islamic solutions are. For example, how do we leverage zakat, waqf, or sadaqah? How do we apply elements of the Islamic economy, Islamic social finance and what we have known in Islamic finance about risk-sharing to other areas? The things that we’ve been pushing for 2 to 3 years which have fallen on deaf ears are now being listened to. For example, people are now interested in a project that I did with the International Federation of Red Cross in Kenya which mobilized zakat in Malaysia nearly 3 years ago. The project had a $1 million donation which created $20 million in capital that was recycled in the community and provided clean water using solar pumping stations as well as a new cash crop. It regenerated the lives of over 1 million people living in one of Kenya’s counties.
Thirdly, in the long-term phase which is after the period of 5 years in the medium-term, the game can change. Thus, we have to invest now in the game changers in a world where we do not really know how things are going to look like. One of these areas is the application of artificial intelligence (AI) and so there have been a lot of discussions about it. Just recently, I had an interview where we spent 50% of the time talking about the application of AI not just in Shariah but also in terms of supply chains, economics and data. Some of the game-changing areas that have been identified in the strategic level discussions are AI, how we regionalize food supply chains and food security, as well as enhancing the levels of collaboration at a country-level.
In conclusion, we need to focus on fixing the core, sort out the challenges we have, improve the economy, invest in the future (in game-changers) even though funds may be limited and promote these game-changers with young people, telling them these are the areas where they should be focusing. We should encourage new ideas, provide the vehicle for new ideas and funding for innovation.
All right so there have been efforts and discussions but now, authority figures are starting to recognize and accept these ideas whereas previously there was no impetus for them to do so, is that correct?
Yes, absolutely. Some of the introspection and reflection that I have done personally and with other members of various groups has made me realize that Islamic finance overall did not respond to the Global Financial Crisis (GFC) which was an economic crisis. It was not badly affected or impacted but the ideas that we had were not introduced, instead, there was a race to get back to normal which meant printing more money and an escalation of debt.
However, today in our current crisis, things are different because not only is the economic crisis a result of the health and social crisis but there are also more discussions about whether alternative models can fix our problems. There is a range of opinions during these discussions where some people are saying that we have to revert back to normal while others are saying that the old system is completely broken and we should throw it away completely to start from scratch. While I do not agree with the former extreme, the latter would be very challenging to implement. Most of the best responses take the middle path where people are taking a serious look at what has been working. For example, the project in Kenya I mentioned earlier is an example of effective and efficient mobilization of capital. There is also a growing recognition that the social impact of SMEs and micro-finance companies are fundamental to most economies around the world but how do we direct capital in an efficient way?
There will be various solutions and varying degrees of acceptance but what I find very encouraging is that the things that were dismissed after the GFC because they had the term ‘Islamic’ in them are now being listened to. People are prepared to listen to a well-reasoned argument and I think it should promote the values of Islamic finance while de-emphasizing the Islamic parts. I do not mean that we should walk away from the Maqasid Al Shariah but rather simply remove or reduce the Arabic terms used to make things clearer and more understandable. Also, we should just talk about social finance solutions. For instance, I’ve been speaking to someone from the Volcker Foundation in New York who had heard about Islamic finance but had never really explored it until he heard what was being said in a discussion. Later on, he said “Gosh I never knew about this!” and admitted that the reason was because “… it had Islamic terms in it. Therefore, I immediately thought that it can’t be for me because I’m not a Muslim and I was not really serious about finding out any answers because of all the bad press I hear about Islam and Muslims”. Then suddenly, he was catapulted into exploring more and frankly, I am unable to feed him enough material right now.
We should get more people on board and get them to understand that the values we are espousing are not dissimilar to the values of many other religions; the objectives of the Maqasid Al Shariah are common. We have to remember the similarities between the Abrahamic face of Judaism, Christianity and Islam, there is a common foundation. Now is the time to re-establish that foundation and collaborate in the context of a crisis which is not going to go away with a vaccine.
I’m no medical expert but I have heard that COVID-19 patients are not actually building up that many antibodies so if a person has suffered from the virus once, he/she is still quite likely to get it again. Therefore though there probably is some truth to it, since not many antibodies are being created, there is no guarantee that those who have had the virus will be immune to it or that a vaccine would be effective. In conclusion, social distancing, sanitation processes/habits and so on are going to have to be maintained for some time and humanity is going to have to adapt to a completely new modus operandi.
Going back to your previous point about how there will be a new normal, will it be a normal that is more fluid? What I mean by that is will constant change be the new normal?
I do not know the answer but I can tell you what my thoughts on that are. Based on what I have been thinking about and what I have heard from others, it will be fluid. The challenge that we face, however, is that people do not like change and prefer to have a routine instead. We are not going to be able to return back to the environment that we had before and instead have to adapt to one where there are social distancing and its implications in place.
We will need to look into how businesses are conducted, for example. How do we conduct an AGM? How do we go shopping? How do we socialize? How do we do education? Yesterday, in a discussion group with others from the Middle East, Europe and the US, we talked about children returning to school and some of the things that have been implemented. For example, in some countries where primary school students are back in school, they have managed to get these kids to perform social distancing through play and association. Around the world, there are interesting experiments going on and there is not enough time to talk about them during this call but I would refute the claim that 4 or 5-year-olds are unable to practice social distancing. They are able to do so, it is just about how the adults educate and train them.
Other things that we need to think about are going on holidays, the whole entertainment industry, having conferences, going for lectures, for example. These are just some examples of the things that we need to think about and probably have to adapt to new realities in. The reality — I think — is that we are going to have multiple waves of the virus, mutations and so on until we find some way to eradicate it completely. Thus, we have to remain fairly adaptive to changes in standard operating procedures as well as making sure that we police and maintain that as effectively as possible.
I’ve heard this phrase along the lines of “I’m not safe until everybody else is safe” being used by eminent leaders in the health industry and if you stop to think about it, you will realize that your actions including who you interact with and where you go will have to change. Personally, I’m comfortable and able to do things from home. I did have to go out yesterday to do some things but I was extremely careful in terms of social distancing and I avoided crowds completely. Everybody will have to adapt to this new normal and the new normal for sure, so change is constant.
Is Islamic finance truly universal? Also, with regards to fintech in Islamic finance or fintech in general, how do the new challenges or technologies complement or fit in with the incumbents? Should it just do its own thing and eventually there will be some form consolidation?
Well, the first question is a simple yes or no question and the answer is yes, it is universal. However, we need to communicate the message more clearly.
For the second question, it is not as easy as saying yes or no. My experience tells me that innovation is going to come from fintech and Islamic fintech rather than from financial institutions. Therefore, fintech companies need to push ahead as far and fast as possible using rapid prototyping and financial institutions will need to pick up on that. In my opinion, trying to get financial institutions to change quickly is rather like getting a supertanker to stop on a dime when in actuality, it takes 5km to stop. It’s not that financial institutions do not have good or capable people, it’s just their whole infrastructure was not designed for rapid prototyping. Fintech companies, on the other hand, are able to do this — I work with 5-6 fintech companies around the world and they are experimenting everyday. Hence, I would encourage fintech and Islamic fintech companies to just go for it and push ahead. It is important to remember that collaboration is key and that nobody is an island but you should not wait for others to make things happen.
What would be your advice to young people?
My advice would be to do something that you are passionate about and that you love but incorporate some entrepreneurial and flexible skills as well. If for example, you are looking to have a career in tourism, give some thought to what it is you really like doing and how you can adapt that to and prepare yourself for a future which is uncertain.
I would encourage young people to have active communication and interaction, to learn skills about collaboration including how one rapidly forms teams with others to exchange ideas and if that doesn’t work, to be able to move on to something else. I would encourage them to essentially learn skills that allow them to become adaptable because I think today it’s more about collaboration and maintaining adaptability.