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By Rushdi Siddiqui, Global Head, Islamic Finance & OIC Countries, Thomson Reuters

Unless Islamic finance is made relevant to young people, it will struggle to gain popularity and grow in strength in the future.

I was fortunate to be part of the Bold Talks 2011, a conference about people who have had their human spirit tested and overcame their breaking points. There was an ex-Guantanamo Bay prisoner, Moazzam Begg, ex-Guantanamo Bay guard who converted to Islam, T.J. Holdbrooks, and globally recognized Stanford University professor, Philip Zimbardo, known for the ‘Stanford Prison experiment.’

The experiment was a study of the psychological effects of role playing as prisoners and prison guard, and showcased the eventual abuse and ensuing torture towards the weak when there is absolute power without accountability.

Obviously, these three speakers can draw and command the emotional attention of any audience in almost any part of the civilized world with their real-life touching experiences.

I was asked present on Islamic finance in the context of the ‘human interest or public good’ story of this niche market. But, a presentation on the prohibition of interest, and the history of Islamic financing was not going to magnetize a large, emotionally charged Gen Y audience.

While Islamic finance is theoretically about social justice, equity and fairness, the inclusion of the financially disenfranchised, stewardship of the environment, this was not going to captivate the audience’s attention.

However, it’s humour, not money, that ultimately builds bridges between people of different ages, interests, ethnicities, religions, and backgrounds. I suggested to the audience that:

1. If Islamic finance was a fruit, it would be a Durian, some love it and some hate it.

2. If Islamic finance vehicle, it would be a steam engine, noisy, slow, steady, but will get you to your eventual destination

3. If Islamic finance was an actor, it would be Bruce Dern, great talent, but always gets role of a bad guy.

4. If Islamic finance was a gadget, it would be the handphone excellent invention, but must continually reinvent itself before going obsolete.

But my presentation could not be a 30 minute stand up Islamic finance stand-up comedy — there was not enough material to fill the allotted time.

While the presentation received only polite applause, the Bold-Talks event raised an important question for Islamic finance and Halal Food industry: what is the Islamic finance story that will bind today’s and tomorrow’s generations together?

After listening to photo-journalist, Joy Tessman, speak about the BP oil disaster of 2010 in Gulf of Mexico, I soon realized it is the environment. Today, not one Islamic bank is member of the Equator, Carbon and/or Climate Principals, yet, the GCC has one of the largest carbon footprints. Additionally, if we look at today’s 560plus Islamic funds, not one Islamic ‘green fund’ comes to mind.

Where is the environmental Corporate Social Responsibility (CSR) of the Islamic finance as stewards of the earth? Islamic banks finance and fund projects, infrastructure to real estate development via syndicated loans or Sukuk, but where are there environment impact covenants?

Imagine Bold-Talks 2020, the keynote presentation is from a CEO of a financial institution that solely financed an infrastructure project in a densely populated African Muslim country encountering decades of civil and ethnic strife. He shared the emotional challenges of overcoming government corruption to lobbying various hostile tribal elders threatening his personal life to explaining the benefits to future generations of $500 million water, education and healthcare project that complied with Equator Principles.

He happened to be the head of the world’s first Islamic mega-bank that used long term Sukuk financing which was oversubscribed by pension funds, hedge funds, and family offices in G20 countries. It showcased the not only ROIs for investors, but, more importantly, exhibited the human interest of Islamic finance.

Today’s youths want to be part of and lead ‘impact investing,’ and if Islamic banks are not prepared to move from Murabaha, then depositor democracy will not only punish, withdrawals, but also encourage local conventional banks to lead. The excuse of an embryonic stage of Islamic finance carries less weight each passing day in their eyes.

During recent travels to UAE, Bahrain, Malaysia, Indonesia and few other Muslim countries, I believe I met the future social ‘faces’ of Islamic finance. This ‘borderless’ generation is not contented with the bylaws of their ‘father’s Islamic bank,’ they want the optional, corporate social responsibility (CSR) to become obligatory to yield social returns.

Their benchmarks are Google, YouTube, Twitter and Facebook (or GoYouTwitFace), where they use information in real time to float trail balloon of ideas to their ‘networks’ in real time. This “native-online population’s” attention span is short and patience is even shorter (it’s Right here, Right Now), yet they are also ‘Mother Theresa’ compassionate for transformational ideas. For example, I suspect many of the Islamic banks today would be ‘crossed examined’ without mercy on what makes them ‘Islamic’ by the Muslim youth of today?

The knowledgeable and internet savvy Gen Y, using social media as their default communication mode, will (1) not be afraid to bring scrutinizing transparency and accountability, (2) share and flush out transformational ideas from cut and paste ideas and, so, (3) Islamic banks need to not only understand the environment of their future customers, but, more importantly, create an atmosphere where they are polled as the ‘most admired company’ young people want to work for!

Islamic banks need to make themselves relevant to tomorrow’s customers, by appealing to today’s youth movement comprised of human interest, social returns and impact investing.

The ball is in the Islamic bank’s court, please do not dribble off of the feet!

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By Rushdi Siddiqui, Global Head, Islamic Finance & OIC Countries, Thomson Reuters

Arab Revolution 2.0 opens an interesting closed window of opportunity for financial inclusion of the devout. Islamic finance was implicitly linked to Muslim Brotherhood, much like ‘creeping Shari’ah in selected G-20 countries, by ex-dictators in the Maghreb to keep themselves entrenched and populace ignorant, on edge and suppressed.

Query: Can it be said that in denying Islamic finance, these Muslim ‘leaders’ were encouraging interest-based lending/finance, hence, contravening the teaching of the Koran? The Koran mentions explicitly about the treatment of ‘… those giving and taking of interest [and those witnessing the transaction] …’ (2:278-279) Then, can it said these leaders have implicitly invoked God’s wrath on themselves as ‘disbelievers’ of Islamic finance in a Muslim majority country? Thus, it seems, for these leaders, fear of Muslim Brotherhood was greater than fear of Almighty?

But, history was made in our lifetime by a highly educated but jobless Tunisian fruit/produce seller, Mr Mohamed Bouazizi, whose act of desperate dignity sparked an electron revolution that bullets and bullying could not suppress. The end result: one gutless dictator with hairdresser wife can now make multiple Umrahs locally, another will soon be joining his sons on a ‘farm,’ where his rivals resided, and our man ‘Moumar’ is, well, a piñata in the wait.

The Arab democracy is real-time in the making, from cleaning house and recovering stolen assets of future generations to establishing new political parties to ‘credible’ parliamentary elections to finding the 2008 ‘Obama – Yes, we can’ moment. Obviously, Islamic finance just does not evoke the same human emotions or interest, but for many mosque-going citizens, issues related to savings, financing, and investing must also be addressed.

The ‘policy’ question is how introduce (in Tunisia and Libya) and reconnect (in Egypt) meaningful Islamic finance without it viewed as part of Muslim Brotherhood agenda, hence, avoid going from a secular suppression to spiritual manipulation. To showcase an established and meaningful Islamic finance since the 1980s, two countries, Malaysia and United Kingdom, are prime examples of secular democracies with an inclusionary Islamic financial hub! Neither country is the hot bed of extremism or suppression.

The message about Islamic finance must be a combination of public-private partnership, and, most importantly, about the right products and services that are market-driven and commercially viable. Concurrently, there may be decades-old pent-up immediate demand for Islamic finance, but building a holistic approach in enabling environment will take time.

First, Islamic finance needs to a public-private partnership, acting as checks and balances, where the former provides the level regulatory and tax playing field and the latter provides the products and customer services. Thus, a top down and bottom up approach, i.e. Malaysia, will be the proper stage managed growth roll out.

The last thing the region, man on the street or Islamic finance needs is another Egyptian type Ponzi scheme of the 1980s. Thus, any Islamic financial entities, in GCC or Europe or Asia, interested in the region need to curb their enthusiasm for selling ‘Islamic loans/funds.’ They need to understand there is a real first mover advantage, but it entails education, awareness, and more education to build interest/desire then loyalty.

Second, Mr. Bouazizi, the educated Tunisian fruit/produce seller, showcased two important financial issues: 1. Wholesale corruption prevents any benefits reaching the intended audience with appropriate consequences, and 2. banks will not finance the entrepreneurial economy, which will ultimately absorb the many unemployed and underemployed.

The priority in the region is not Islamic hedge funds, derivatives, and possible even equity mutual funds, but funding and financing start-ups and expansion capital for small businesses. The question to ask is how many in the region are bankable, have bank accounts or have invested in the local stock exchanges? Simple answer, not many!

The conventional banks have not been able to address the needs of the local start-ups, and Islamic banks will probably also target the same bankable and investable. However, those at the ‘bottom of the pyramid,’ starts ups and the non-real estate entities requiring expansion capital may well continue to flounder without the requisite ‘attention financing.’

However, in the Maghreb, Islamic finance can move beyond the rhetoric of financial inclusion and social justice and actually be a contributing stakeholder in the Jasmine revolution for financial democracy. Let the people decide for Islamic finance and/or conventional banking by their deposits, by their funding and financing needs, by their investment needs, and so on. If Islamic finance is indeed a solution, then it must be stress tested in the market places of ideas and demands.

Thus, a two-prong approach may be the way forward: 1. An Islamic Development/Industrial Bank for financing selected sectors (industrial policy?) based upon applied research; and 2. Funding pilot programs tied to the real local economy: micro-finance, micro-funds, SME financing, etc., with focus on Mudarabah (fund financing) and Musharaka (partnership financing) funds.

Presently, many Islamic banks in the GCC outsource fund management to established asset management firms, and the same approach should be deployed here with seeded funds and incubated over one/two years. This becomes another asset class with geographic diversification for Islamic banks and their investors.

For Islamic banks, new geographical markets without a comprehensive regulatory and supervision environment is typically a ‘DND,’ do not disturb sign. But a professionally seeded, mandated and operated Islamic fund may be the entry strategy to serve the funding needs of the likes of Mr Bouazizi.

Its morally and ethically difficult to tell financially disenfranchised people to wait for funding till Islamic banking regulations or scholar sign off are in place. Islamic finance needs to be both human and relevant to all people seeking dignity of a livelihood for themselves and their families, otherwise ‘whats the difference?’

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