Last of three parts

WHEN we successfully converted the systems and operations of the then conventional, Riba-based International Bank of Brunei into the Islamic system and practice of Riba-free-equitable-ethical based Islamic Bank of Brunei, we were initially so concerned whether it's non-Muslim clients would desert it en masse. But incredulously, by will of Allah (SWT), we were pleasantly surprised that not only those non-Muslim clients had stayed with the new Islamic Bank of Brunei, but the Bank had gradually increased its client-based and businesses with the non-Muslim clients.

Why? Because they had eventually realised its Divine equitable practice of risk-sharing of the fixed costs of lending/borrowings, based on the akad - the "religious-based Agreement".

This independent report on Insyallah accounts in Newsweek, July 21, 2000, is an eye-opener: "about 20 per cent of all enquiries worldwide into Quranic-complaint banking comes from people who aren't Islamic. HSBC's Islamic banking division says that 40 per cent of its clients in Malaysia are non-Muslims. So what is the draw? Bankers say it is the ethical values this banking represents. Islamic investment portfolios must be segregated and carefully tracked to avoid haram industries like gambling, tobacco, alcohol, immoral activities and the like offering customers an added level of detail as to where exactly their money is.

Regrettably, it is this ethical-stability-equitable-fixed costs of lending/borrowings and pro-economic growth that gives the illusion of lower rates of returns.

The adulation for anything Western is our common mental affliction.The Malay proverb: Gajah didepan tak nampak, semut diseberang terang dilihat! (One cannot see an elephant right in front of one's eyes, but a far away ant across the river is clearly seen).

Bodoh-bodoh sepat, tak makan pancing emas - Malay proverb. (Man sees only the gain and not the danger as fish sees only the bait and not the hook.).

The issue raised by Hairul Azrin on the so-called the "co-mingling of a pool of funds, consisting of different kinds of deposits under different types of Muamalah contracts" is actually not a legal nor a performance problem. This is because "the pool of mingled funds" is all halal based, and each fund or value has its respective akad - the "Agreement", establishing the equitable agreed benefits/costs between the bank and the owners of those funds. The ownership is well-documented and the risk-sharing, (not risk-shifting) clearly well understood. No doubts!

Thus, it is vital to note herein that the "unknown" net returns - high, low, zero, negative - in Islamic banking practice does not mean that there is any systematic weakness in the Islamic economics. On the contrary, as was highlighted in The Brunei Times, October 27,2008, that: "Syariah Banking System Strong."

To conclude, I am quoting the following prominent non-Muslims' views, to avoid risk of being accused of blowing "Islamic own trumpet", to support my views.

Professor John R Presley and JE Sessiors of Loughborough University (UK) in May 1994 issue of the Economic Journal of the Royal Economic Society of Britain, examined the central contribution of Islamic principle of banking/finance and economics as follows:

"Western economists have been somewhat remiss in the last decade in failing to recognise what has the appearance of a new paradigm in economics- that of Islamic Economics. A Riba contract creates an explicit mapping between the compensation and the input of capital. The prevalent method of Mudharabah financing tries compensation on the outcome of the projects. We have shown that the use of the prevalent alternative method of financier remuneration under Mudharabah will, under certain conditions lead to an enhanced level of capital investment on account of the ability of Mudharabah to act as an efficient revelation device. Therefore, Islamic banking, if properly developed on the fundamental principles expanded by Islam, is destined to lay a crucial role in reconstructing the economy in the 21st Century on very sound foundations."

Professor John Presely's assertion is reinforced by James Robertson in his book Transforming Economic Life: A Millenial Challenge. "The money-on-money must grow imperative (and greed) is ecologically destructive and economically inefficient. This results in a massive worldwide diversion of productive effort away from providing useful goods and services, into higher consumption and wastage, into making money-out-of-money," Robertson says adding: "The serious pervasive role of interest in the economic system results in the systematic transfer of money from those who have less to those who have more. When we look at the money system that way and when we begin to think about how it should be redesigned to carry out its function fairly and efficiently as part of enabling and concerning economy, the arrangements for interest-free, inflation free money system for the 21st Century seems to be very strong."

What Robertson and Presely in fact tried to infer is the destructive evil of Riba through money breeding more money creating more money, the virtual, fictitious paper wealth to gain profits, without any direct risk taking involvement in the productive real economic activities, work, effort and services. As we are only too familiar with, Islam is against this creation of virtual, fictitious paper wealth which is simply the excretion of Riba.

The editor of The Strait Times (Singapore), January 26, 1999 made, among others, the following comments: "Now consider the following scene, a once and future prosperous country is drowning in debt. Its creditors know that it can pay back its debt if given time. Would it make sense for them to say to the temporarily stricken country: "Look, we are prepared to roll-over your debts provided you pay us Y per cent above prime?" Why risk the country's recovery by wrapping weights around its feet even as it tries desperately to trade water? This is bad banking, bad economics and bad politic. But, that is precisely what international banks are proposing to do in South Korea."

Consumers Association of Singapore says to banks: "Do not whack those who can not pay." (The Strait Times - November 17, 2001).

Now, referring to the paper's assertions, are not these what the first part of Verse 280: Surah Al-Baqarah (2) advises us: "If the debtor is in difficulty,

Grant him time till it is easy for him to repay."

It is said that a near-death experience forces one to re-evaluate priorities and values; forces one to be humble and open-minded; ready and willing to accept advices; some even become religious.

Thus on 31 June 2000, 14 world leaders met in Berlin.

They had a brainstorming summit seeking for the "third way" or the "middle way" between the socialism of the past and law-of-the-jungle failed capitalism of today.

These leaders issued the following communiqué: "We believe that the market economy must go hand in hand with social responsibility, to promote long-term growth, stability and full employment, encourage social justice and protect the environment."

(The New Sunday Times - June 4, 2000)

The front cover of the Economist, November 15-21, 2008 carried this bold title: "Redesigning Global Finance". Its editorial visualised a revamped global system akin to some of those guidelines as mandated, all these long years, by the guidelines of The International Association of Islamic Banks as have been applied by Syariah body of an Islamic bank and finance.

Gordon Brown, the then British Prime Minister, at the Davos World Economic Forum on January 31, 2009, vocally called for a complete overhaul of the Western financial system, and asserted that IMF and the World Bank were now out of date!

Now, in the Davos Economic Forum 2012 (January 29-31, 2012) the proud, arrogant Western countries are once again reenacting their struggles - words louder than actions - to overhaul their Western Riba-based systems and practices.

Ponder again on this BBC Debate aired on February 3, 2012 "Shift From Wall Street To Real Economy." Isn't this what Islamic economics is all about?

During their 1987 economic recession, the West had also vowed to overhaul their Riba-based systems and practices. Now, they have been hit harder by the 2007 USA-made financial meltdown and its ruinous economic consequences - the worst since their 1930's Great Economic Depression. But since the 1930's the West have been talking vociferously but with different actors. So they started once again. Like a yo-yo!

Again, ponder on this objective, impartial assertion of Nouriel Roubini (The Brunei Times, October 15, 2011): "But the Laissez-faire ("free for all") Anglo-Saxon model has also now failed miserably. To stabilise market oriented economies requires a return to right balance between markets and provision of public goods Even an alternative Asian growth model if there really is one has not prevented a rise in inequality in China, India and elsewhere.

"Any economic model that does not properly address inequality will eventually face a crisis of legitimacy. (resulting) in more severe protests (socio-political uprisings) than those which occurred in 2011 with socio-political instability eventually harming long-term economic growth and welfare."

Now this is the golden opportunity for our Islamic bankers, experts, economists to diligently educate Nouriel Roubini that the alternative economic model he has been looking for is really the "middle way" Islamic economic model. The "Asian growth model", Nouriel Roubini alluded to, is actually still the Western Riba-based inequitable capitalistic model, hence the rise in inequality.

So, to those Western politicians, bureaucrats, experts and entrepreneurs please quickly jettison your pride and prejudice. Since 1930s you have been in panic searching for the efficacious medicine for your recurrent but getting worse financial-economic ills. Don't be shy! The Syariah medicines, the "middle way", have been available since 1433 years ago for the West to take free of charge. No caveat!

(Concluded)

Part One: Islamic banks vs commercial banks

Part Two: Islamic banks vs commercial banks

The views of the author are his own and do not represent those of The Brunei Times.

The Brunei Times