In this interview, we will be speaking to Dr Humayon Dar who is the Director-General of Cambridge Institute of Islamic Finance – a research think tank that attempts to promote Islamic banking and finance in an academically rigorous way. Dr Humayon Dar previously served as the Director-General of Islamic Research and Training Institute which is a member of the Islamic Development Bank Group. We will be discussing topics such as the current situation’s impact on Islamic finance, the role of Islamic finance today, Maqasid Al-Shariah or higher objectives of Shariah, how has his organization been affected by the current situation and his advice to young professionals/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.
Let’s get started then!
You can watch the full interview here
Can you share how Covid-19 has affected your organization, highlighting one or two of the most significant potential negative impacts as well as opportunities?
Well, there are two entities, Cambridge International Financial Advisory (IFA) which is a for-profit organization, and Cambridge Institute of Islamic Finance which is a not for profit organization. The former is involved in consultancy, advisory, and advocacy of Islamic finance and the latter is a research think tank, which attempts to promote Islamic banking and finance in an academically rigorous way. With Cambridge IFA, have not been significantly affected by the ongoing crisis primarily because we have been able to continue several projects that we had started before the crisis. One such example is the project we are doing for the Asian Development Bank on advocating and mainstreaming Islamic finance in five member countries of Asian Development Bank: Pakistan, Afghanistan, Tajikistan, Kazakhstan, and the Kyrgyz Republic. Thankfully we were at a stage where desktop research was required and this is something we are able to do wherever we are. Although our consultancy and advisory business has not been affected much, it has been slightly affected because the pipeline has dried down so we are hoping that this crisis would be short-lived in the sense that business will start coming in. We do not know the real consequences of this lockdown but we are very optimistic that by the end of Q2 or the first half of the year, things will start to open up and there will be some kind of normalcy returning to the market. This would benefit us just like everyone else.
An area that has been badly affected however, is our advocacy business where the awards and publication segment is a part of. We had to change the venue of our Global Good Governance awards which were scheduled to be held in Bali this year on April 7 to Jakarta due to the lockdown and government restrictions in place. However, we were told by the Indonesian government that this would not be possible as they would not allow any kind of gatherings, especially the gatherings where international delegates would be participating as well. As a result, we postponed the Global Good Governance awards to the 8th of June and planned to have a physical ceremony preferably in Jakarta or elsewhere if Jakarta was not possible but we were advised not to proceed. So we have explored the possibility of organizing these awards online. We are calling this Global Good Governance Awards Online Award Ceremony and have hired a high profile film production company for it because we want to do the things in the best possible way. Our award programs are very well received and respected in the market. So for this online award ceremony, we did not want to do something which was not up to the mark and this is something we are working on.
With online events and online awards, the dynamics may not be the same. The effect and the impact are not what your objective is all about. Is that what you’re trying to say?
Actually, I was a sceptic of technology but COVID-19 has opened my eyes. Our physical award ceremonies had an impact, yes, but when we looked into online award ceremonies, we realized that the benefits we can bring to the participants with online ceremonies are much more than we have been offering previously. For example, with our first online award ceremony, we are aiming to reach out to 1 million viewers which would not be possible for a physical awards ceremony. Having said that, we are not happy with what is happening in the world, everything has stopped but the use of technology is allowing us to continue. Our strategy for this year is to survive. We are facing a very deep crisis which – unlike the global financial crisis – is hitting all the sectors in the economy. It is also not only an economic crisis, but it’s a social crisis as well.
Touching on that point and from a wider perspective, do you think the strategy is to survive, observe and wait or survive, observe and strike? Sometimes when you strike, you may think that there is an opportunity to get a million but when you do it, things may not work out as planned since the dynamics are all very new. What would you say about that?
I would say that I have been speaking with a number of CEOs of Islamic banks and they are quite calm about things. It appears as if the crisis has not hit them yet and in their perspective, if the economy starts to open up now, they would not be in any danger. Even though there would be a pause of about three months, once things return to normalcy, they will be able to bounce back. This is consistent with the opinions of the World Bank and IMF because although the GDP growth expectations for 2020 are bad, the figures for 2021 are very encouraging. Thus, once the global economy returns to its normal routine, businesses would pick up. In my opinion, Islamic finance is not going to be affected very badly. Even with conventional finance, in the United Kingdom, for example, there has not been any big bad announcement by a big bank or financial institution so far. I believe that this is a wider crisis that is going to affect the likes of airlines, the tourism industry, and many other economic sectors in the economy but it would have less of an effect on banking and finance.
Why do you think the people you’ve spoken to and in your observation, why are they so relaxed?
I don’t think anyone was prepared. However, what is comforting to know for those who are running the banks is that previously when the Global Financial Crisis (GFC) hit the market, financial institutions were already in bad shape but in this case, banks and financial institutions were doing very well. The semi-annual or quarterly reports by the banks were very encouraging, their profitability was going up and everyone seemed to be very happy about it. When the managers of Islamic banks look at their fundamental financials, capital adequacy ratios are very good. In Malaysia for example, the capital reserves of Malaysian Islamic banks are quite healthy as of now. As for what will happen in the future, I think only the data will tell us. However, we are hoping that say for example from today, the Malaysian economy will open up gradually which means businesses will start coming back to some routine, and hopefully, the negative effects of the pandemic would start going away gradually.
Whenever there is a crisis, there is always opportunity because humanity will start to look at itself and make adjustments. In this situation, what role do you think Islamic finance (as a concept) should play? What can it contribute to humanity moving forward? Given today’s context where the world is relooking at things, for example with capitalism, is consumerism going to stay? Are people still going to buy things they don’t need and how will this affect finance? What are your thoughts on this?
Let me be very blunt: I believe that Islamic banking and finance has pretended to be a lot more than what it is. When the global financial crisis happened, people said it was a huge opportunity for Islamic finance to become mainstream but nothing happened. A lot of institutions such as multilateral institutions, governments, and others were looking for Islamic financial solutions but we did not give them any. Islamic banking and finance is, unfortunately, a follower, it hasn’t taken a lead on any front at all. I am an advocate of Islamic banking and finance and I would like to highlight it. For the last 25 years, I have been talking about and in favour of Islamic finance and I will continue to do so. However, we are not good at seizing opportunities. The scholars and intellectuals in the Islamic world have been talking about Maqasid Al-Shariah, higher objectives of Sharia and their implementation in finance but no one listened. The Sustainable Development Goals (SDGs) on the other hand, have become so effective because there was a multilateral institution that adopted and championed the idea. Even Islamic banks and financial institutions are now subscribing to SDGs. Where are the higher objectives of Shariah? On an intellectual level, Islamic banking and finance have a lot of superior ideas but unfortunately, those running these institutions do not listen to the intellectuals/scholars in the Islamic world.
There are a lot of Maqasid Al-Shariah or higher objectives of Shariah but the intellectuals in the Islamic world have been summarizing them into five points/areas:
- Protection and preservation of faith.
- Protection and preservation of life in general not only human life.
- Protection of wealth.
- Protection of intellect,
- Protection of family.
- Protection of dignity and so on.
These are the five higher objectives of Shariah which have been in mainstream Islamic economics, banking, and finance literature. IRTI did a lot of research on the higher objectives of Sharia but even Islamic Development Bank did not adopt them. The idea behind Islamic banking and finance was to give an alternative in banking and finance that was fairer, more equitable, and more favourable for all stakeholders. Unfortunately, Islamic banking and finance have evolved only as a Shariah-compliant business which is value addition in itself. It hasn’t come up with any economic value proposition more than being Shariah-compliant. This is why we haven’t touched the lives of the people.
If we look at the demand for Islamic banking and finance in the Muslim world, 75% of Muslims do not have any significant demand for Islamic banking and finance. Why do even Muslims not have trust and confidence in Islamic banking and finance in general? Until and unless we address these questions/issues, we cannot come up with new innovative ideas and products based on those ideas. An opportunity may be there but I do not think that the managers of Islamic banks and financial institutions are ready to take up that opportunity to provide an alternative. At best, Islamic banking and finance is a subset of conventional financial markets and in this area, they are excelling. The profitability of Islamic banks and financial institutions is constantly improving and they are using technology well. They are becoming more mainstream in terms of their value proposition, services, their products, and so on. Islamization of banking and finance has taken place but only marginally and I believe this is something that Islamic banks and financial institutions should be looking into. They should try to strengthen their core and this crisis may allow them to pause for a while, rethink the value proposition and come up with a new model of Islamic banking and finance.
For new startups who are interested and passionate about Maqasid Al- Shariah, what kind of mindset should they adopt?
I am a great fan of what you have been doing. In a very short period and in the technology space, the ideas you have implemented are wonderful and everyone talks about these initiatives, not only myself. I think the crisis has given tech-oriented companies an opportunity. Before, I did not like the idea of coming on board for an online interaction like this despite numerous invitations because I never believed that it could work. However, over the last eight weeks, I have been on a number of webinars and have started to like technology. Many others feel the same. We have been exposed to technology now in a way that we had not been before. This is an opportunity for tech-oriented companies to create products that can develop Islamic finance in a meaningful way. An example of where an opportunity lies could be a contribution to charity. The technology was there but people were not exposed to it then. I believe that Ethis’s Sadaqah platform has huge potential. If a global product around charity is introduced, it should work. I constantly give the example of Islamic Relief because it started as a charitable organization but now it’s a big organization with a focus on charity relief as well as financial services and other businesses. I think that charity and waqf are things that Muslims should be focusing on to develop Islamic finance in a meaningful way for the benefit of the communities.
What would be your biggest advice to all the young people today? With COVID and all these changes around us, this is an unprecedented crisis/events. What is your advice?
I do not think that events such as the current one should change our world view even though people say that there will be a new normal after COVID. That is true from one perspective. However, as a Muslim and as a Muslim who is turning 50 soon, I am entering into an age bracket where you start looking at things in a very different way. For young people or professionals, I would advise them to invest in themselves. I believe that if they do so and if they try daily to become better human beings, it will help them in their careers immensely. A lot of people fail in their professional life including in business and entrepreneurship ventures because of a fundamental flaw in their personality. I think this ethical approach to personality development is extremely important; even if they pick up only one virtue and solely focus on that virtue alone, it will change their life. It will help them of course in other aspects of their life, but it will help them immensely in their professional life as well. This is a reminder for my son and everyone else as well. For those who are in Islamic banking and finance, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has come up with a code of ethics and I recommend going through it, choosing a few clauses, and incorporating those into your personalities and actions. There is a very close link between who you are as a person and what you are going to do in your business/professional life. If you become a slightly better human being, you’re going to be a better employee and you will be rewarded for that. As for soft skills, people normally acquire them as part of their personal strategy. What I am suggesting instead is incorporating one virtue in your personality without expecting anything because once it has been incorporated, it will help you anyway.
Remember if you chase after the akhira (the hereafter) then the dunya (this world/life) will come along. However, if you chase the worldly things, you may not have a good place in the hereafter. So I think the important thing is to go for the superior things because then the inferior things will naturally follow along.
Here are our best takeaways from the interview:
Takeaway #1: Invest in yourself and strive daily to become a better person. A lot of people fail in their professional lives because there is a fundamental flaw in their personality.
Takeaway #2: Islamic banks and financial institutions should implement Maqasid al-Shariah or the higher objectives of Shariah. Also, they should address why 75% of Muslims do not have a significant demand for Islamic finance. In addition, they should look into the Islamization of banking and finance. They should try to strengthen their core and this crisis may allow them to pause for a while, rethink the value proposition and come up with a new model of Islamic banking and finance.
Takeaway #3: There is an opportunity for tech-oriented companies to create products that can develop Islamic finance in a meaningful way. I think that charity and waqf are things that Muslims should be focusing on to develop Islamic finance in a meaningful way for the benefit of the communities.