Daud Vicary on the challenges and universal adoption of Islamic Social Finance

We are delighted to have Daud Vicary with us today. He is the Managing Director of DVA Consulting Sdn. Bhd and the former President and Chief Executive Officer of The Global University of Islamic Finance (INCEIF). Additionally, he is a partner for Gateway Global, a leading Shariah-compliant professional advisory firm. Daud is active in the advisory of 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”. This discussion will touch on his background, current work, Islamic finance, fintech, how COVID-19 has affected our society, plans for the future as well as his advice to young people. 

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 unfamiliar 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 before 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 of these companies 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. Furthermore, 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 already quite familiar with Skype and Zoom. Now, that has accelerated and I do 2-3 times more calls than I used to. 

In my opinion, two things have really changed. 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 has been 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 because of the COVID-19 situation and the fact that 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 Paul Volcker, the former head of the Federal Reserve. It 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. Also, I’ve been involved with a fintech company that is headquartered in the Netherlands but run by Saudis and it 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 lunatic just 3 months ago are no longer viewed as such which, I find to be very stimulating. There is a great deal of collaboration as well as an exchange of thoughts happening so as someone who has practiced 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 may 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: short-term, medium-term and long-term. In the short-term, the focus should be on fixing the core which is the health issue, making sure people can make a living and balancing between these two issues. This period can last between 1 to 6 months and there have been many discussions around the world on how to solve these issues. 

Secondly, the medium-term which can range from 6 months to 5 years will see us managing the shift in playing fields and adapting to the new normal because there will be no return to our current normal. During this period of improving the economy, there will be lively discussions regarding what the 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 that 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 from 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, the game can change. Thus, we have to invest now in the game changers of a world where we do not really know how things will look like. One of these areas is the application of artificial intelligence (AI) and there have been a lot of discussions on it. Recently, I had an interview where we spent half of the time talking about the application of AI not just in Shariah but also in supply chains, economics and data. Some of the game-changing areas that have been identified in strategic level discussions are AI, regionalizing food supply chains, food security and enhancing the levels of collaboration at the 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 by telling them these are the areas that they should focus on. 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 and instead, there was a race to get back to normal which meant printing more money and an escalation of debt. 

However, things are different today because not only is the economic crisis a result of the health and social crisis, there also seem to be more discussions on whether alternative models can fix our problems. There are varying opinions during these discussions as some people say that we have to revert to normal while others say that the old system is broken and we should throw it away 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 with varying degrees of acceptance but what I find very encouraging is that ideas 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 which, I think 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 we simply remove or reduce the Arabic terms used to make things clearer and more understandable. Additionally, we should just talk about social finance solutions. I’ve been speaking to someone from the Volcker Foundation in New York who had heard about Islamic finance but 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 for this was that, “… 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 meaning that 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 that is not going to go away with a vaccine. 

I’m no medical expert but I have heard that COVID-19 patients are not 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, although there is probably 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 forth are going to have to be maintained for some time and humanity is going to have to adapt to a completely new modus operandi. 

Pertaining to your previous point on a new normal, will it be a normal that is more fluid? 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 my knowledge/thoughts 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 routines instead. We are not going to be able to return to the environment that we had before and instead have to adapt to one where social distancing and its implications in place. 

We will need to look into how businesses are conducted, for example. How do we conduct an annualized general meeting (AGM)? How do we go shopping? How do we socialize? What about education? Yesterday, in a discussion group with people 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, interesting experiments are going on and there is not enough time to talk about all of them during this call but I would refute the claim that 4 or 5-year-olds are unable to practice social distancing. They can do it, it is just a matter of how adults educate and train them. 

Other things that we need to re-think include going on holidays, the entertainment industry, having conferences, going for lectures and so forth. These are just some examples of the things/areas that we need to think about and these will probably have new realities that we have to adapt to. The reality — I think — is that we are going to have multiple waves of the virus or face mutations and so on until we find some way to eradicate it. Thus, we have to remain adaptive to changes in standard operating procedures and make sure that we police and maintain these as effectively as possible. 

I’ve heard a 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, followed social distancing rules and avoided crowds. Everybody will have to adapt to the new normal. 

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 of 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 like trying to get 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 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. For example, if you are looking to have a career in tourism, give some thought to what it is you really like doing within tourism and how you can adapt that to 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 that today it’s more about collaboration and maintaining adaptability. 

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