Islamic finance: Academics note the importance of a focus on social justice

London, with five Islamic banks and countless sharia [Islamic law] compliant “divisions” in conventional institutions, is without a doubt the western capital of Islamic finance.

Walk into almost any bank in the City of London, and you can get expert advice on underwriting sukuk, – Islamic bonds – buying equity or making sure your investments are appropriate.

No wonder, then, that Britain is the place to study Islamic finance, too – with a variety of courses offering training alongside, and sometimes as a core part of, traditional programmes.

Universities and colleges across the country attract students from all over the world – some of whom end up working in the city, while many more return home to continue their careers.

Salman AlHajee is one such student. He had already worked at ABC Islamic Bank in Bahrain, his home country, for three years before embarking on an MSc in investment banking and Islamic finance at the ICMA Centre, Henley Business School.

The proportion of Islamic finance on the course is high, at about 25 per cent, with the students spending the summer term in Kuala Lumpur at the International Centre for Education in Islamic Finance, to give them a real feel for working in countries where Islamic finance is commonplace.

But Mr AlHajee, at least, hopes to find a job in London when he rejoins the workforce in September.

“The financial sector is evolving very quickly,” he says. “And in order to achieve my objective of being in a senior position at an investment bank, I have to have a degree.”

Simon Archer, a visiting professor and Islamic finance tutor for the course at Henley, says the masters is “certainly designed for financial professionals as well as being a preparation for doctoral studies”, and Mr AlHajee is not alone in already having industry experience.

Since launching three years ago, the degree has grown in popularity, reflecting the increase in interest in Islamic finance as a whole.

Sharia-compliant products have been seen by some as a safe alternative in the wake of the global financial crisis, and many non-Muslims now seek this type of investment.

However, some believe that the rise of the sector has come at a price.

Some scholars believe that in the drive to attract customers, some of the principles that are supposed to inform Islamic finance have been sacrificed.

Ros Haniffa, who teaches accounting and supervises Islamic finance PhDs at Hull University Business School, is concerned that the tenets of sharia-compliance are being forgotten in a drive for business.

“The ethical identity of Islamic finance institutions is far from the ideal,” she says.

“What should direct [them] is social responsibility and justice, alleviating poverty, microfinancing – and profits should be going to help Muslims in poor countries – but this is not always happening. It seems to be all about profit, rather than helping people, as it should be.”

Prof Archer agrees: “As providers of Islamic financial services strive to find substitutes for conventional products, one can see the development of new products which are the result of ‘juristic engineering’ in order to avoid ... sharia prohibitions.”

Moreover, as Islamic finance becomes more prominent, it is also under increased scrutiny, in particular when it comes to implementing international accounting standards, such as Basel III, which is problematic enough for conventional banks.

Recognising revenue and income, both integral to financial reporting, is difficult.

“The standards are interest-based,” says Prof Haniffa. “They are based on accrual, but Islamic finance must be based on asset value.”

So, should potential students be on the look-out for courses on ethics and accountancy standards?

“You can’t talk about financials without also talking about accountants,” says Prof Haniffa. So, yes, a good accountancy element is important.

More important, however, is honest and critical thinking about what is and what is not acceptable to the spirit of Islamic finance.

“Those working in Islamic finance cannot afford to be complacent,” says Prof Haniffa.

“Some people teaching the subject only concentrate on the good side and pretend it’s all going well and fine.

“It is essential to be sceptical and question – why is Islamic finance becoming so popular?”

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