Islamic Finance: A View From The Outside

Post By:Ashish Rajadhyaksha

View From The Outside

Financial turmoil over the past decade as we all know was primarily caused by

  • Financial Greed;
  • Irrational Exuberance;
  • Excessive Debt;
  • Low Interest Rates, and
  • Insufficient Enforcement of Regulations.

During 2007-2008, along with everybody else, I saw my retirement savings and stock market holdings decline by more than 50%, but luckily I made it back once the stock market recovered in 2009-2010.  So having gone through this gut wrenching investment experience myself, I wanted to study best practices in portfolio and risk management along with various structures, instruments and alternative mechanisms available to prevent, hedge or even profit from future irrational exuberances.

This search for prudent financial management and sustainable business models made me look closely at Islamic Finance in addition to the Conventional Field of Debt Restructurings; both highly specialized areas where one prohibits interest while the other figures out how to lower interest burden for entities when paying interest is permissible.  So with prior background in financial restructurings, I decided to learn more about Islamic Finance as a possible career option upon receiving my MBA and also as a hedge against my conventional portfolio investments.

Throughout this learning process, several individuals and senior professionals I connected on Linked-In have helped me generously by forwarding relevant articles and blog posts to help me learn various concepts, applications, similarities and differences between Conventional Finance and Islamic Finance through case studies and other means.  Truthfully as a Non-Muslim, many of the Arabic words have been difficult to comprehend and remember, although the criteria are quite similar to Socially Responsible Investing (SRI) screens and the financial application seems fairly clear to someone trained in the fields of accounting and finance.

But understanding the terminology, navigating the case studies and investment structures was the easy part, the hard part was and still remains as to how I would be able to utilize my new found “knowledge”.   Colleges and MBA degrees confer upon you the ability to think and analyze, but they don’t make you experts at anything, let alone a complicated field like Islamic Finance that’s based upon case law derived over many centuries.  To gain that sort of “expert” knowledge, one needs experience of possibly many years in various aspects of finance with all kinds of securities and structures.  So for those fresh graduates on various Linked-In Groups who’re looking to get into Islamic Finance because of their religious beliefs, perhaps it would be more helpful to get business and finance experience with any reputable, ethical company that deals with instruments in either conventional or Islamic sphere, and then try leveraging that experience to get a position of their religious beliefs later if desired.

From my research, I’ve seen that there’re more commonalities than differences between Conventional and Islamic Finance, so why not focus on the similarities and try bridging the gap one deal at a time?   Being in the U.S., I and many others have the simultaneous good fortune of people seeing the market potential for Islamic Finance here, while also the challenge of being in a Non-Muslim country where all transactions are heavily scrutinized for Anti-Money Laundering, Terror Financing, Sources and Uses of Islamic Funds as we all saw in the prospective Islamic Center near 9/11 Memorial case where finance cannot easily be separated from religious biases and views.  So for most professionals and U.S. institutions, the question is why bother with any additional onerous regulations when conventional markets have rebounded smartly over the past 2 years, yields are so low and U.S. economy is on the rebound.  Well remember, history repeats itself!

Faced with this type of unstructured, almost pioneering career path, I wondered whether what I learnt in the Entrepreneurship and Innovation class of the MBA program at William Paterson University, NJ would help me and countless others in getting their foot in the Islamic Finance doors.  We studied about utilizing Creativity, Entrepreneurship and Innovation to create Blue Oceans and Growing Outside The Core not only for creating niche businesses, but also for leapfrogging competition through               Thought Leadership and developing either Disruptive or Continuous Innovations.

These aren’t just buzz words, but gets you to wonder why none of the Islamic Finance Thought Leaders have created something akin to BPO’s where they train fresh graduates in the areas of Sharia Compliance, Debt Restructuring, Risk Management, Business Development, Corporate Governance, AML (Anti-Money Laundering), Structured Finance and the list goes on.

Wouldn’t it be great to apply for a Business Sustainability Consultant position who’ll advise on sustainable Debt/Equity Capital Structures, Sharia/Conventional Convergence as well as setup appropriate “Best Practice” Corporate Governance Procedures for Global Institutions & Corporations?

I’m sure someone will do this soon, and we all will be better for it.  As to my own journey, stay tuned….