Islamic Finance Incommunicado

By Bernardo Vizcaino, CAIA

The following article was first published in the Opalesque Islamic Finance Intelligence – Fifteenth Issue (see reference link) and is reprinted here with permission.


It seems that Islamic finance is getting a makeover. Recently there have been various (some light-hearted) attempts to dissect Islamic finance: from comparing Islamic finance to every-day items, tongue-in-cheek forecasting of industry developments, clever use of soccer metaphors, to berating the much-hyped self-congratulation that we periodically witness in conferences and industry events. This kind of commentary, taken as a whole, hints to a desire to revisit the message of Islamic finance and how this is communicated.

One of our contributors recently inquired about who had coined the term Islamic finance, and this led to discussions surrounding the first forays into Islamic Economics and looking further back to the early days of Muslim commerce.Almost simultaneously I had been asked to provide feedback to one of the above-mentioned questionnaires, one of them asking us to identify what  everyday items best resembled Islamic finance. The latter was an intriguing exercise since it was effectively reaching out to our subconscious perception of the industry.

These were intriguing queries, looking at the origins of Islamic finance (exactly where it came from) and the characteristics we ascribe to this industry (metaphorically speaking that is). Overall, these and many other approaches carry a common denominator, they are all trying to make the topic more accessible to the masses.

Perhaps the definition of Islamic finance is too eccentric for a lay person, in other words it doesn’t make sense except to those who are already familiar with Islamic finance in the first place. Furthermore, it appears that there is no standard definition of Islamic finance (some are even circular – making reference to Islamic banking… what good is that!) and all of them lack simplicity (often degenerating into multi-paragraphed expositions).

Naturally, the core of Islamic finance is Shariah, but once again it does not lend itself for easy assimilation by newcomers. Then again, there have been many qualities ascribed to Islamic finance: borrowing from ethical and sustainable finance, focusing on the interest-free and participatory nature of its products, to the socially responsible and community engagement role of its member banks. All of these terms are valid, but there is yet to be a definition that is all-encompassing.

Perhaps the message is not being communicated effectively, not reaching or catering to the right audience (specifically those weird people outside of the industry which we will refer to from now on as “consumers”). Yes consumers are the ultimate audience, and as we see discussions gravitate around the definition it is equally important to observe how such definitions are being delivered.

Even a cursory survey of industry portals yields very few definitions of Islamic finance or Islamic banking, presumably because they are such obvious terms that they don’t require an introduction. However, communicating what is Islamic finance could use novel tools and some lateral-thinking. Sometimes metaphor, symbolism, and even parody can help illustrate the inner-workings of the industry.

Perhaps it matters little what we consider to be the ‘correct’ definition of Islamic finance. Notice my attempt to avoid offering a definition (attribute this to laziness if you will). It might be that what needs to be redefined is the focus of the industry. The most important concern is not a few sentences or a nominal description, but rather to engage more people and broaden the appeal of Islamic finance – beyond the limited walls of a few service providers. Definitions are useful, but they are of little use if the industry keeps talking to itself.

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3 thoughts on “Islamic Finance Incommunicado

  1. Good point Ashish. There’s definitely an issue with the term “Islamic Finance”. After all, there is a lot in a name and a ‘brand name’ selection’ is science. However, the label is going to be there. So the question is how do we provide clarity. There’s a great post on this by David Vicary (EPL In Islamic Finance: Education–How & What)here {do have a read of that}.

    My own pov–Islamic Finance is a financial management system (holistically speaking) meant to ensure that the trading parties concerned benefit.The guiding post for these transactions is sharia, as you rightly said. The essence (intention) of the transactions stem from the guidelines that constitute the 5 pillars of Islam ( Business, Social, Politics, Marriage, Crimes). Thus, a financial transaction has to actually see what effect/impact it would have across these areas; most importantly, in business and in society. And, if its “halal” conceptually (i.e. in intention).

    I’m not qualified to say if this is done or not done at present. But from the retail perspective and given the couple of researches I’ve been involved in there’s a lot of doubt and pre-conceived image of IF amongst the retail segment which actually has hampered retail IF growth. Without any clear (and simple) communication on the benefits the consumer has had not much opportunity to learn and has therefore kept his/her distance from IF products. With thi factor in, the fact that, today’s world most of us are more familar with the conventional banking with which we have all grown up.


  2. While there’s overlap between Islamic Finance and Socially Responsible Investing, the single biggest issue is the search for Muslim identity and where it belongs in the global order and socio-economic systems. From what I’ve researched so far, it isn’t entirely certain whether integration or segregation is the correct path to economic nirvana for the industry.

    Conventional finance doesn’t call itself Non-Muslim finance, so why should IF call itself Islamic Finance or Sharia Finance? If there’s to be meaningful growth, I sincerely believe that a corrective definition is in order to simplify and better explain the intent of IF to both “believers” and “non-believers”.

    Sharia is the source and guiding post for IF, but it can and must be integrated into a broader definition since its principles are applicable and prudent for all since money has no color or boundaries. Interest can be redefined and restructured into profits or dividends as is done by creative lawyers and bankers, but the problem comes with the concept of risk-sharing for banks.

    I humbly offer the definitions of “Debt Managed Obligations”, “Debt Managed Instruments”, or “Debt Managed Finance” as alternatives for example to CDO’s (Collateralized Debt Obligations” that almost brought down the economic world a couple of years ago as one of the possible avenues that industry leaders such as David Vicary and the folks at Opalesque to start thinking about.


    1. Hello Ashish,

      I didn’t mention integration/segregation but there is a misconception that Islamic finance is for Muslims only or to put it other way that it is relevant only to Muslims. In fact I just had a discussion in our forum relating to Muslim and non-Muslim perception of Islamic banking, and the overall conclusion of various research papers is that there is little to separate these two. Saving for a rainy day, the need for responsible/safe investments, piece of mind in your finances, these are all rather universal goals of consumers. Would be glad to share the links for these papers separately or here as well.

      I do believe that a strong driver behind the development of Islamic finance is this search for Muslim identity, and I have referred to this in the past as a “generational change” of sorts. Part of this process seems to be this re-definition and simplification of what is Islamic finance. This message (combined with effective delivery of that same message) is poised to open up the industry to a larger percentage of consumers.

      Best Regards,
      Editor, Opalesque Islamic Finance Intelligence


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