RISK SHARING
that “this trend towards greater use of debt-creating finance is not necessarily creating the level of cooperation, trust-building and socially beneficial risk-taking that are required for inclusive and sustainable economic growth”.
Is there a natural link between the creation of shared values and risk sharing?
Not necessarily so, says prominent syariah adviser and entrepreneur, Datuk Dr Daud Bakar, who is the chairman of Amanie Advisors and the Syariah Advisory Councils (SAC) of the SC and Bank Negara.
For argument’s sake, he asks, how will we treat this theme if risk-sharing is found to be detrimental in some Islamic finance practices?
To him, any discourse must be steeped in the appropriate legal basis and sources of knowledge, which must be backed by divine revelation essentially to protect the purity of the message and its ethos.
It is also the democratisation of access and participation in banking, insurance and capital markets by ordinary people. In this case, finance not only serves to be the great equaliser, but also the much-needed facilitator. Doing it through shared values and risk-sharing would be the icing on the cake. How does one define shared values?
Daud defines values as representing a set of beliefs, ideals or benefits, which are desirable by a group of people, which have a major influence on their behaviour and attitude.
To a large extent, both risk and values are human in nature.
It’s up to humans to assess and bear the risk accordingly, either fully or partially, or even to decline from taking the risk.
There are several options and flexibility in risk mitigation — transfer from one to the other; sharing of risk; or a combination of debt and equity (Daman).
But, are shared values confined to the provisions of maqasid alsyariah (objectives of the syariah as in Islamic finance), or do they include the wider ethical finance, environmental, social and governance (ESG) and responsible finance movements, or the stakeholder universe of regulatory, legal, operational, management, shareholders, customers and other such aspects, or even the newer developments in fintech, block-chain ledger management and cybersecurity?
For instance, the Islamic finance industry is currently romancing the wider ESG/SRI/Ethical finance movements.
There is a lot of talk about synergies. I am all for cooperation and discourse to advance the agenda of ethical Islamic finance. But where do shared values start and end?
It would be disingenuous to the future generation of Islamic bankers and their customers/stakeholders to highlight only the commonalities between Islamic finance and the ethical finance movements — issues relating to environmental impact, labour policies, especially child labour and slave labour practices, transfer pricing, anti-trust and speculative activities, fair wage structures, transparency including non-recourse whistleblowing provisions to report wrongdoing such as mis-selling of products, and to play down the differences which in many respects go to the core of the discourse — that is the proscription of (non-disclosure),
(gambling).
Are there indeed, from a maqasid point of view, shared values in a Green Sukuk and a
conventional Green Bond? Is it a case of choosing either form or substance, instead of both which are implicit in the maqasid al-syariah?
There is also the unfortunate tendency these days by some of demonising debt-based products when these have been sanctioned by the syariah and fiqh literature over the centuries.
In today’s complex economy and society, most households are beholden to at least one type of what I would call essential debt, such as mortgages and car hirepurchases. Not all debt is bad and regressive.
However, when some Muslim thinkers and economists elevate equity-based financing to the higher status of maqasid al-syariah, and when some have gone to the extent to even declare that equity-based financing is the only scheme that can fulfil this aspect of wealth distribution, Daud is not so sure. I tend to agree with him.
Maqasid al-syariah can’t be established in a vacuum or be based on mere emotions and preferences, and must be backed by empirical data, which he stressed is “cumulative and compounding”.
In other words, there must be a number of divine texts that carry the same message to reinforce the superiority of equity-based financing.
Both equity and debt financing have positive and negative aspects. The Islamic finance industry needs a better and balanced narrative based on pragmatism that can leverage the benefits of both, and advance the impressive growth of the industry to the next level.