Former Malaysian Prime Minister Mahathir Mohammed is arguably the most popular politician in the Muslim street. Even in retirement he still exudes that "street cred" and "wow" factor because he speaks his mind. Not surprisingly, when he delivered the keynote speech at the Malaysia Islamic finance showcase dinner in Manama on the eve of the 7th Islamic Financial Services Board (IFSB) annual summit, he did not disappoint, albeit privately, his aides did suggest that he toned down some of his remarks.
The theme of his speech, "Islamic Finance - New Hope for the Future of the Muslim World," may sound aspirational or even idealistic, but the former Malaysian leader was not bereft of any ideas or suggestions.
He rued the fact that Muslims and Muslim countries do not value or manage their wealth properly, which has created a culture on dependency and a lack of capacity building. "The very rich Muslims and Muslim countries," he explained, "appear not to value their wealth or to care about the management of wealth. This has been taken advantage of by others. We may have unlimited sources of wealth but we can never assume that the resources will always yield wealth forever. Depending on others to extract and market our resources is dangerous. The Muslim economy are of course a part of the world's economy but whether the Muslims get their fair share of the wealth of their countries depends on their ability to extract it themselves."
For instance, in the West great businesses have failed because the companies and their executives failed to see the changes taking place around them. The same can apply to commodities or products. Rubber used to be the cash cow for Malaysia. But then came the synthetic variety and the bottom fell out of the rubber market. It is entirely possible that one day the same would happen to the oil market, when renewables and alternatives are developed.
It is only if the Islamic financial institutions (IFIs) are aware of the full extent of the role they can play and they are willing to look beyond merely making money available to those who need it will they be able to represent hope for a better future for the Muslim World.
Mahathir, who is responsible for developing and introducing Malaysia's Islamic finance model and policy in the early 1980s, is also a pragmatist. Islamic finance, he agrees, in itself will not ensure a better future for the Muslim World. "But it will certainly help," he advised, "if Muslims learn how to use these institutions to manage the wealth of Muslims to aggressively promote the services they can offer, to have a sense of responsibility for strengthening the Muslim community, and to make the government of Muslim countries aware of the potential contribution of banking and other financial institutions."
Muslims and their countries have taken a long time to appreciate the role of banks in wealth creation, partly because of the injunction against usury, which prevents Muslims from simply adopting the Western banking system. Nevertheless, as their dealings with Western countries grew they were forced to use the usury-based banks of the West. In fact, many Muslim countries decided to set up their own usury-based banks despite the injunctions of Islam. This means that they were increasing profits and helping the growth of the usury-based banking.
Despite the fact that Islamic finance has grown tremendously with total Islamic assets worldwide exceeding $1 trillion and overall growth rate totaling 15-20 percent per annum, it has not impacted in the same positive way on development and economic progress as the conventional banks have had on industrialized economies. There is today not a single Muslim country that can be classified as developed.
However, Islamic finance is still very tiny compared to the conventional system. This is even more remarkable considering that so many Muslim countries have become extremely rich from the proceeds of the sale of their huge reserves of petroleum. "Can we say that it is the prohibition of usury which is stifling the growth of Islamic finance and prosperity and development in the Muslim world? I don't think anyone can blame the teachings of Islam," he asserted.
Mahathir, who used to attend Islamic finance promotion weeks in Malaysia during his watch as prime minister, berated ordinary Muslims too for not using Islamic finance fully. Furthermore, he attacked wealthy Muslim countries for their unwillingness to invest their money in a way that could improve the situation in the Muslim world.
"For many, all that had been done is to buy bonds, which - apart from being un-Islamic as the earnings are through interest - give only minute returns. Investing in this way denies the investor any say in the management of the money. In fact, as pointed out earlier the funds invested can be used by the borrowers for things totally forbidden by Islam. The funds could actually be earning interest for the borrower. It is bad enough to invest in interest-bearing bonds, but it is worse when the money lent through bonds go toward financing loans, which bear interest. Of course, there can be other uses for the money such as investment in non-Shariah compliant businesses and for the production of weapons to be used against Muslims."
Mahathir called for a greater connect between Islamic finance and the real economy, especially in helping Muslim countries to industrialize; to create honest wealth not based on speculative activities but on products and services that create employment and wealth and that remain compatible with the teachings of Islam.
He warned Islamic banks of wantonly aping conventional Islamic financial products. Admittedly, it is not the Western system that has gone wrong. It is the abuses perpetrated by the market players, the speculators and the gamblers who have done this.
"We cannot ensure there are no rogues in the Islamic financial market or in the Islamic world. We hope that Islamic injunctions will restrain them. But we cannot be sure. Greed assails us all. When opportunities appear for making quick money, the rogues would not be deterred by mere religious prohibition," he added.
In this respect, he called on Muslim countries to adopt the best practices in banking regulation and supervision to protect savers and customers "even if this stifles the performance and the role of the banks in ensuring a better future for the Muslim World."
source : arab news