"Islamic finance at the crossroads", Ethical Corporation, via World Business Council for Sustainable Development, November 14, 2006
A few weeks ago, Ethical Corporation, a publisher and conference organizer with a focus on corporate ethics, published a special report on financial sector responsibility. In the special report (a link to the full story is included at the bottom of the article provided by the World Business Council for Sustainable Development, one article focuses on Islamic finance. A few quotes from the article:
• "As Islamic finance picks up speed in the global mainstream, are Islam's social and environmental concerns getting left behind?"
• "There are also concerns that while Sharia boards are empowered to consider Sharia in the round, in practice they focus on a few narrow prohibitions and contractual concerns."
• "There is even a process in Islam akin to the assessment of impacts on stakeholders and the resolution of conflicts between them so as to maximise the overall public interest, known as maslahah mursalah. Special care is taken to prioritise the interests of the weak and vulnerable."
• "Islam’s environmental and social concerns are echoed in the Equator Principles and the UN Principles for Responsible Investment, yet no Islamic financial institution has signed up to these instruments, leaving secular institutions to lead the way. Adapting the Equator Principles for Islamic purposes might represent a way forward that does not stretch the already overburdened Sharia board system." (italics added)
• "Sharia board members are paid by banks to deliver fatwa (rulings based on the Sharia). Although these may be disclosed to institutional clients, Islamic finance consumers and affected communities are left to accept the ruling of umpires chosen and paid for by the other team."
The issues highlighted in this report show the gap between the rhetoric of Islamic finance and the reality of how Islamic finance is actually occurring across the world. As my post yesterday mentioned, "developing Islamic finance with a focus on ethical investment with oversight by a broad group of Muslim scholars will allow Islamic finance to grow." As the socially responsible & ethical finance industry has grown significantly with the Equator Principles, Extractive Industries Transparency Initiative, UN Human Rights Norms for Business and, more recently, the Dubai Ethics Resource Center (which provides ethical business resources in the United Arab Emirates), it is time for the Islamic financial industry to join in. The industry is based on an code of ethics that is directly concerned with how business is conducted, investments made and personal financial transactions are conducted and should be the first to embrace ethical financial practices.