Interview with a SpecialistIslamic Finance & Banking

Islamic Banking and Finance growth is vital: Prof. M.A. Mannan

 

Islamic Banking and Finance growth is vital: Prof. M.A. Mannan

By Dr. Shariq Nisar

Introduction:

 Equally dexterous in Research and its application Prof. Mannan is considered as one of the earliest Islamic economists of the subcontinent. With a Ph. D. degree in Economics from Mich. U.S.A. Prof. Mannan has more than four decades of experience in money, banking, finance, economic planning, civil administration, teaching, and research. He has served about 13 years at the highest professional position of Senior Economist in Islamic Development Bank (IDB). His book: Islamic Economics-Theory and Practice is internationally recognized as the first textbook on the subject. With more than 20 reprint the book has been translated in dozen of foreign languages. A Founder Chairman of the Social Investment Bank Ltd. (SIBL) Dhaka, Bangladesh, Prof. Mannan shares his views with Dr. Shariq Nisar.

 

 

Could you please let us know about your current area of engagement in Islamic economics?

 

 

I am currently involved in the (a) Neglected frontiers of Non-formal Islamic Banking and Finance dealing with management of family empowerment Micro-credit for the poor (b) Islamic voluntary sector Banking with special reference to introduction of Cash-Waqf Certificate, an innovation in Islamic Financial Instrument for the first time in history and investment and (c) establishment of World Social Bank with its Head quarters preferably in Indonesia for Global mobilization, creation and investment of Cash Waqf Fund to expand and open up new frontiers of human freedom that includes freedom from educational, social and economic deprivations.

 

 

Your famous book ‘Islamic Economics: Theory and Practice’ is still a prime textbook for the beginners. What major development has taken place since last two and half decade that you could add in your book?

 

 

I wrote this book almost 40 years ago on the assumption that my readers have no prior knowledge of either economics or Shariah. To compliment this, I wrote a number of other books at my mature age. The book; “THE MAKING OF ISLAMIC ECONOMIC SOCIETY”: Islamic dimensions in economic analysis, is intended to offer the readers an analytical exposition of Islamic dimensions in economic analysis at a level higher than my earlier book, a creative synthesis and an intuitive grasp of many recent developments in the field of Islamic economics, money and banking. In this book, I have advocated the concept of “effective need” instead of “effective demand” as a basis of market mechanism in Islam, rejected “Pareto optimality” and “given demand” hypothesis in explaining the behavior of the firm, advanced the notion of “expected desirable income” hypothesis in developing the nature of consumption function and planed price differentiation”, limited indexation and credit creation by Islamic banks, raised the problems of intra-poor distributional equity through the disbursement of Zakat revenue, advocated the formation of Muslim Commonwealth of Communities.

 

 

Your writings have much focused on the economic development in Islamic prospective. What are major stumbling blocks in this regard?

 

 

In my view,  Lack of Muslim Leaders with social vision, pro-colonial development policy adopted by Muslim leaders in their countries, institutional rigidities and rampant corruption in Muslim Societies are among others, the main stumbling blocks of development of Muslim Countries. Following conditions pinpoint the development process in a modern Muslim Society.

 

1. Mass participation and sharing in economic activities through the establishment of Islamic social banking at grass-roots level.

 

1. Using distributive consideration for determining production priorities.

 

1. Humanizing the line of production, distribution and consumption.

 

1. Institutionalizing the obligatory, Islamic tools of redistribution of income and the Islamic voluntary sector.

 

1. Provision for future generations.

 

1. Increasing the level of economic cooperation and the levels of regional, economic and monetary integration.

 

 

During half century of theory and quarter century of practice what Islamic economics has offered to the most deserving class of the society? 

 

 

Unfortunately, Islamic Banks have done little for the poor. To the best of my knowledge, Social Investment Bank Ltd. is the only Islamic Commercial Bank in Bangladesh, which operates on the basis of integrated three sector model: Formal, In-formal and Voluntary sector of the economy. This is the only bank in Bangladesh, perhaps in the world which starts with the very phrase, “Targeting Poverty”, while stating its objects in Memorandum of Association for achieving a goal of participatory economy for a caring society.

 

Social Investment Bank Ltd. (SIBL) is indeed a concept of 21^st Century participatory three sector banking model in one: in the formal sector, it works as an Islamic Participatory Commercial Bank with human face approach to credit and banking on the basis of profit & loss sharing; It is a Non-Formal Banking with the poor in non-corporate sector dealing with informal finance, Micro-credit and Micro-enterprises that empower the family and create local income opportunities and discourage internal migration; It is a Development Bank intended to monetize the voluntary sector, committed basically to financing development and management of over 1,55,000 Waqf, Mosque properties in Bangladesh as well as Non-Muslim Trust properties. SIBL is indeed committed to implement the principle of participatory economy with human face approach to credit and banking on interest free basis with a view to empowering the family as the basic social unit.

 

The crucial lesson of operation of SIBL are that the real performance of Islamic Banks lie not merely in their volume of deposit, investment and distributable profit as reflected in the conventional financial balance sheet but also in the growth of human capital balance sheet expressed in terms of broadening the base of Islamic finance and diffusing its concentration of ownership, expanding the number of beneficiaries at the grass-root level as well as in the growth of social capital accumulation balance sheet expressed in terms of re-inforcing family and social values that stimulates civil society.

 

It appears that Islamic Corporate Banking is getting submerged in the wave of market and running the risk of marginalising social and ethical ingredients of Islamic Finance. While the convergence between Islamic Banks and Western Banks having Islamic window may bring efficiency in operations of Islamic Banks, it is expected to face at least following five dilemmas in the corporate sector:

 

(a)                                  Concentration of ownership and beneficiaries of Islamic Finance;

 

(b)                                 Neglecting the vast masses of people at the grass-root level;

 

(c)                Secularizing Islamic Economics, Banking and Finance; Marginalising social, ethical and moral ingredients of Islamic Finance; and

 

(d)                                 Neglecting the growth of human and social capital which reinforce shared values and stimulates caring society.

 

 

The fact is that Islamic Banking and Finance in the 21st Century needs “discontinuous leaps” – a change in paradigm, to clear the backlog of history. It is however, felt that, the Islamic Banking in the 21^st Century will face great challenge of our time but it would create great opportunities as well, for developing participatory economy beyond market, arrest the present trend toward the globalisation of poverty and colonization, concentration of ownership and beneficiaries of Islamic Banking and Finance, redefine the role of Islamic formal corporate finance, rediscover new role of informal and semiformal finance, through developing tailor-made credit package for re-empowerment of families of both the rich and the poor at the grass-root level, help development of voluntary sector Social Banking for mobilization and capitalization of social savings and investments.

 

 

Do you think Islamic economics/Islamic banking can make some significant contributions in Bangladesh?

 

 

Despite pervasive corruption and institutional rigidities, I am sure that Islamic Economics Banking and Finance can make a significant contribution in Bangladesh. There are at least five Islamic Banks and three conventional Banks with Islamic windows operating in Bangladesh with over 200 branches through the country.

 

In fact, Islami Banks of Bangladesh is the largest bank in the private sector and top income tax payer among over 40 private sector Banks in Bangladesh. Social Investment Bank Limited became the three “A” Class Banks in the country in 2000. Overall Islamic Banks are performing better than Non-Islamic Banks in Bangladesh.

 

 

Could you please let us know that how far the Islamic economics has traveled? What have been its major achievements and failures?

 

 

The principles of Islamic Economics Banking and Finance existed since advent of Islam. I am simply trying to unlock the code of our time and lock principles of Islamic Economics into our code of time in the language, understandable to us. Our collective achievement lies in the fact that Islamic Economy Banking and Finance can provide a viable alternative to existing Market Economic system, not only in Muslim Countries but also in Non-Muslim countries as well. Our collective failure lies in the fact that we have so far not yet been be able to put up a great resistance to the present trend towards globalization of poverty and neo-colonization of our future.

 

 

There are many financial institutions in India that strive to work on Islamic principles. What advice would you like to offer people running these institutions?

 

 

I am inclined to suggest that Islamic Financial institution operating in India should include in their operations the most neglected areas of non-formal Banking dealing with micro-credit as well as Islamic voluntary sector Banking with a view to introducing Cash Waqf Certificate.

 

 

Any message to young researchers?

 

 

If young researchers take the trouble of reading my books on Islamic Economics, Banking & Finance written relatively at my mature age, offer their comments, so that I can learn and link my generation to their new generation, then my labor will be amply rewarded. I have a dream; I need prayers for all of you.

SOURCE: http://www.financeinislam.com/article/9/1/448