ACTION will be judged — the Islamic concept of accountability is at the core of the entire philosophy that scaffolds the community’s financial development in an Islamic state. Initially disavowed as a ‘no banking system’ and then labelled as too religiously confined, Islamic banking has come up astoundingly and with great flourish, suspending all arguments against it.

It is rapidly permeating the monopoly of conventional financial systems, gaining recognition for its resilience and robust risk management backed by collateral assets. Its inclusive nature has driven remarkable growth even in secular economies like those of the United Kingdom and Singapore.

From the Islamic perspective, all wealth belongs to God, and man is only a trustee who should manage it accordingly to achieve worldly prosperity. The Holy Quran says in Surah Nur, Verse 33 “... and give something out of the wealth that God has bestowed upon you. …” Meanwhile in Surah Baqarah, Verse 275 it is stated: “Allah hath permitted trade and forbidden usury”, because wealth is a product that needs to be invested to build financial infrastructure in the community and for the community — it is not to hoard or take interest on.

The historical development of Islamic banking will help us see how the Arab concept of ‘amanat’ emphasised entrusting reliable and trustworthy individuals with financial and valuable assets. This trustworthiness formed the cornerstone of the community’s financial ethics. ‘Al Amanah’ and ‘Al Masu’uliyyah’ defined requisite financial behaviour, making the absence of riba a mechanical tool for a healthier business community. Riba was declared to be a satanic instrument bringing misery and cruelty while standing in the way of the well-being of a community. With robust customer due diligence, monitoring of transactions, timely reporting/sharing mechanisms, and obliteration of speculation (gharar), combined with thorough scrutiny by Islamic scholars to ensure that investments are made in ethically sound businesses, Islamic commerce gained ground, enabling the rise of the Islamic dominions.

Islamic fintech is gaining traction.

The introduction of mudaraba (profit and loss sharing) and musharaka (partnership) concepts as risk-sharing mechanisms proved effective, as they encouraged precise reporting and transparent disclosure of financial information. All stakeholders had a vested interest in the ventures’ success, which encouraged robust collaborative frameworks.

Additionally, zakat (charitable giving) and sadaqah (voluntary giving) played a role in redistributing wealth and addressing social inequalities, contributing to a more equitable and transparent financial ecosystem. The beauty is that this evolving landscape of Islamic finance existed within the parameters of taqwa (mindfulness of accountability towards Allah) ensuring the strong responsibility of each stakeholder to uphold the highest moral principles. Gambling, whether qimar or maisir, was strictly barred. The idea of wishful ease without payment or labour was not admissible. Fraud or coercion, of course, fell more in the ambit of dishonesty and, hence, were completely out of the picture too.

History shows several success stories of the system, and today, Islamic finance again proposes robust due diligence, stringent monitoring, and timely reporting mechanisms, mitigating money laundering and non-compliance. In this technological era, the market is coming up with the tools to work against fraudulent activities, ensuring comprehensive screening through ‘Know-Your-Customer’ (KYC). Combined with thorough scrutiny by Islamic scholars, the ingrained values ensure a perfect ethos.

Islamic fintech (mobile banking, online payment systems, and blockchain applications) is gaining traction and bringing the unbanked to the banking system, especially women and youth. Artificial intelligence has empowered Islamic fintech to not only detect but also predict possible behaviours with an analysis of ‘weak points’ of entry, but how it stands to reveal the power of ‘Islamic’ firewalls remains to be seen.

We are globally looking at green Sukuks to fund environmentally friendly projects and initiatives — the integral well-being of the system combined with specially designed green initiatives stands to create a strong bond with sustainability, creating a huge appeal for socially conscientious investors across the globe.

Islamic financial instruments are poised to play a significant role with stronger resistance towards phishing cyberattacks. The ethos of well-being in Islamic banking is vital to change the game, making Islamic banking a strong and resilient alternative banking system across the globe.

The writer is a former minister of state and chairman Board of Investment.

X (formerly Twitter): @MAzfarAhsan

Published in Dawn, November 10th, 2023