Tell us something about yourself and your journey to CARE International UK?
I have worked as Senior Microfinance Adviser for CARE International
UK for the past seven years. CARE is a large international aid organisations
with headquarters in Geneva, Switzerland and has operations in more than 90
countries around the world. I work specifically on the www.lendwithcare.org microfinance
crowd-funding project. Through Lendwithcare we support 12 microfinance
organisations with a strong social development mission in 10 countries in Asia,
Africa and South America. We provide our microfinance partners with
interest-free capital to increase the scale and outreach of their operations.
Our partner in Pakistan is Akhuwat and we have been working with them for the
past four years.
With regard to my qualifications and background, I undertook
all my studies in the United Kingdom and have a BA in Economics and
Agricultural Economics, an MSc in Agricultural Economics and a PhD in
Development Economics. I came to CARE after working as an agricultural
economist for the previous 17 years in countries as diverse as Honduras,
Nicaragua, Ecuador, Bosnia & Herzegovina, Kosovo, Pakistan and Sudan. As
well as helping to establish microfinance organisations in various countries
with support tens of thousands of small-scale businesses I have written widely
on small business development, microfinance, Islamic microfinance in
particular, as well as more generally on faith and development. My latest book ‘Islamic
Microfinance: Shari’ah compliant and Sustainable?’, written together with
Professor Malcolm Harper, was published in April 2017.
How might Islamic
finance aid development and reduce poverty?
My personal focus has always been on trying to find ways to
improve the lives of poor people, so this is a question of particular interest
to me. An estimated two-thirds of the world’s poor still lack access to basic
financial services, such as loans, savings, insurance/takaful and money transfer facilities. Therefore, most obviously,
increasing the scale and outreach of Islamic finance will promote financial
inclusion and help people to manage their personal and business affairs better.
However, simply increasing the provision of financial services is not enough –
it must be the right type of service. This means that it should be specifically
tailored and adapted to the needs of the poor if it is to have any meaningful
impact on alleviating poverty.
In addition, I would be keen to explore the role that
Islamic finance might play in supporting more general development. Even at a
conservative estimate there are several hundred Islamic financial institutions
worldwide with net assets of more than US$2 trillion. How much good might be
achieved by systematically channelling the zakat
and sadaqah of Islamic financial
institutions into development projects such as providing clean water in rural
communities, building schools and promoting the welfare of orphans?
What are the
strengths of Islamic finance and how do you see the development of Islamic
banking worldwide?
There are of course certain principles that distinguish
Islamic finance, and these include the prohibition of riba, only financing socially productive activities, and linking
financial transactions to real, tangible economic activity as opposed to
financial speculation. All these are likely to promote ‘better outcomes’.
However, I think the main strength of Islamic finance is that it is not an end
in itself but it possesses an underlying core spirit that seeks to promote
social justice through ethical behaviour, fairness and transparency in the
conduct of commerce and trade. As Islamic finance develops, which undoubtedly it
will, I think it is imperative that we abide by the spirit of Islamic finance;
otherwise it just becomes an exercise in ‘financial engineering’ – indeed when
this happens, we should even be hesitant in calling the sector ‘Islamic’. The
corollary of this is that unless the users of Islamic finance are convinced
that the services being offered are truly ‘Shari’ah compliant’, they will
always be reluctant to use them and in the longer-term the sector will simply
not develop and grow as it should – I think that this ultimately will influence
the manner and size of the Islamic financial sector the most. In this regard,
Islamic finance is simply ‘ethical finance’ and perhaps it should be promoted
as such – I am sure that it would attract a greater number of potential clients
– in many Western countries, for example, there is a growing appetite for ‘ethical’
or ‘fair’ finance.
Do you think a lack
of knowledge is impending the growth of Islamic finance?
Certainly the lack of suitably qualified personnel used to
be a significant problem. However, it is less so now. Indeed, over recent
years, organisations such as Al Hudo Centre for Islamic Banking and Economics,
have promoted a range of excellent academic courses and training opportunities
for Islamic finance professionals and has increased the number of skilled
Islamic finance professionals.
However, I do think Islamic finance is constrained by a lack
of innovation, particularly in my particular area of expertise which is
microfinance, that is the provision of financial services for poor people.
Instead, what we have observed are institutions providing microfinance
following the example of the larger Islamic banks in the design and delivery of
financial products and services. This is of course neither always appropriate
nor cost effective since microfinance clients require, for example, relatively
small sized loans, often for working capital rather than fixed assets, and live
in geographically isolated rural areas with poor infrastructure. Furthermore, I
think there is sometimes the issue of authenticity – Islamic finance will only
really develop if clients are convinced that Islamic products and services are ‘truly
Islamic’ rather than a series of re-packaged and re-branded interest based
instruments.
How might Islamic
finance be used to promote agricultural and rural development?
Islamic finance possesses a range of instruments that are particularly
appropriate for promoting agricultural and rural development but these have, by
and large, been under-utilised in the provision of financial services because
of a reluctance of banks and microfinance institutions to provide them rather
than because of lack of demand. Suitable mechanisms such as bai salam, whereby the full price for a
crop can be agreed and paid up-front in cash by the bank or microfinance
institution. This would ease liquidity shortages for the small farmers by
enabling them to receive advance payment so that they have money to buy inputs
to grow their crops and feed their families up until harvest time.
Other financing mechanisms are variants of profit and loss
sharing arrangements, and include musaqat,
which is a specific type of musharaka
contract for orchards in which the harvest is shared among all the equity
partners according to their contributions. Under such a contract a bank may
provide a farmer with orchards, gardens or trees that they own or which are
otherwise in their possession. This is done for the purpose of gathering the
harvest of the orchard of garden and dividing it in a specified ratio. The harvest
may be the fruit, leaves, or flowers of the trees or plants in the orchard or
garden. Yet another instrument is a muzar’ah
contract which is essentially a mudaraba
contract in farming where the financier can provide land or funds in return for
a share of the harvest.
Do you have a message
for the general public through True Banking Magazine?
Yes, demand financial products and services that adhere to
the spirit of Shari’ah, not just the letter. We should always keep uppermost in
our minds that rules and ideas behind Islamic finance were created for a
purpose – to promote social justice. Once more authentic products and services
are offered, I am certain that demand for Islamic finance will increase, from
Muslims and non-Muslims alike.
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