Islamic finance a viable alternative

THE future of Islamic finance promises great potential and is well on its way to surpass the widely used conventional financial system as many become aware that the Islamic way provides a viable alternative for better economic and business activities.

International Centre for Education in Islamic Finance (INCEIF) head of economics and governance department Syed Abdul Hamid Al Junid said Islamic finance is different due to the ethics and morality involved.

"Wealth-creating growth and development promoted by Islamic finance are circumscribed by morality and ethics to curb things like greed," he said, noting that the natural tendency of the current conventional system is to look at the end aim or objective.

Syed Abdul Hamid said the end results of conventional financial system may look good but it can cost the society and it will not be durable.



"Sooner of later it will crack or crumble. This is what we witnessed during the global economic downturn," he said, stressing the need to sustain ethical and moral values in finance.

Syed Abdul Hamid said the difference between Islamic and the conventional system lies not only at the society level but involves the view and understanding of the Islamic world itself.

Islamic finance is founded based on syariah principles which express an intention to meet the financial needs of participants with integrity and in a manner that is just, fair, trustworthy and honest, while ensuring a more equitable wealth distribution.

It upholds the principles of integrity, transparency, fairness and good corporate governance.

"The level of integrity and good ethics in Islamic finance has shown a lot of improvement in Malaysia," he said.

Syed Abdul Hamid said there is still a lot more that needs to be done to improve the integrity of Islamic finance and ethics especially in educating industry players on its concept including to the non-Muslim society.

"We must have a good understanding on what the Islamic finance conceptual framework is based upon or else we will not be able to fully comply to the syariah principles that upholds it," he said.

He said learning about syariah compliance without knowing how it comes into play is considered as incomplete.

This will create an environment of prescriptive thinking which means complying for the sake of complying and nothing more, Syed Abdul Hamid added.

He said with integrity and ethics of Islamic finance, it could help contribute to the global financial market stability and prevent excesses that led to the collapse of the conventional financial system.

"The issue lies not so much with innovation but with the loss of the finance industry's moral compass.

"There is therefore a need to bring back faith into finance. Islamic finance, through its set of principles for good governance and responsibility, can help curtail excesses and promote higher level of honesty, fairness and integrity," he said.