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Last week I was able to reflect on “Responsible Finance”. This week, in the light of the Greek crisis and some interesting articles on the state of play in Islamic Finance, I would like to reflect further on a couple of issues that appear to be generally ignored when we look at where we are at in IF.
You will all be familiar, by now, with the acronym STARS. This represents the basis for the establishment of an Islamic Finance system in any jurisdiction. Here is a reminder S, Sharia‘a and Legal Framework. T, Tax environment. A, Accounting Framework. R, Regulatory Framework. S, Standards Framework.
Today I would like to take a look at the first two letters of the Acronym, S and T, in the context of the Global development of Islamic Finance. Despite the fact that our industry is faced by many challenges, we have made progress in both growth and I also believe, in impact. However, we have been constrained greatly by operating within a Global System that through legal processes that are more geared to supporting creditor’s in having debts repaid and a tax system that generally favours and supports the growth of debt, thereby giving tax relief to ever growing amounts of debt. While Islam does not forbid debt, it does encourage one to live within ones means to and to use debt when it is essential, rather than when it is non-essential. Indeed, when debt is used it is proscribed that the debtor, rather than the creditor should set the terms and conditions for repayment and settlement.
These two areas, both legal and tax frameworks will need to be addressed if we are to break free from the many constraints that exist in the current conventional system. The task, no doubt, is monumental, as we are challenging a status quo that has existed for centuries. However, where there is a will there is a way. We simply cannot continue to stumble from financial crisis to financial crisis expecting a different result. As I have written on many occasions before there is an ever increasing to revisit the rules of the game and redress the balance to a more level playing field that encourages Financial Inclusion, Risk Sharing and allows Finance once again to become Responsible.
There is much to do and not a moment to lose.
By Daud Vicary Abdullah