Ethical, SRI and Shariah Perspectives – Possible Synergies By Reza Zain Jaufeerally, Takaful Masterclass 2009, London, 30th June
Ethical/SRI The concept represented by the term ‘socially responsible investing’ has also been used interchangeably as ‘social investing’, ‘socially aware investing’, ‘ethical investing’, ‘mission-based investing’, and ‘doublebottom line investing’ (Social Investment Forum, 1999)
2
• ‘Integrating personal values and societal concerns with investment decisions is called socially responsible investing (SRI). SRI considers both the investor’s financial needs and an investment’s impact on society. With SRI, (one) can put (one’s) money to work to build a better tomorrow while earning competitive returns today.’ (Social Investment Forum) 3
Ownership of the Earth • The Koran states several times that the earth is the property of God. For instance: Moses said to his people, ‘Turn to God for help and be steadfast: the earth belongs to God – He gives it as their own to whichever of His servants He chooses – and the happy future belongs to those who are mindful of him,’ [ 7:128 ] • Moreover, the Koran re-affirms more than twenty times that: ‘control of the heavens and earth belongs to Him. Everything is brought back to God’ [ 57:5 ] 4
• ‘It was He who created all that is on the earth for you, then turned to the sky and made the seven heavens; it is He who has knowledge of all things.’ [ 2:29 ] • [Prophet], when your Lord told the angels, ‘I am putting a khalifa on earth,’ they said, ‘How can you put someone there who will cause damage and bloodshed, when we celebrate Your praise and proclaim Your Holiness?’ but He said , ‘I know things you do not.’ [ 2:30 ]
5
Islamic Principles I • Khalifah defines our position in the cosmos as ‘trustees’ of God. As trustees, we have the responsibility to safeguard nature and resources of the planet, and will be accountable for their abuse both in this world and the Hereafter • Akharah or ‘the Hereafter’ – the idea that we are all accountable for our actions in the Hereafter 6
Islamic Principles II • Tawheed is the central concept of Islam; literally means ‘unity of God’ but also implies the unity and equality of all humanity. • Adl , or to do justice, in the most wide-ranging sense of the word, in every aspect of individual and social life is a primary obligation for all Muslims. • Istislah , or public interest, a fundamental source of Islamic law, makes it a responsibility of individuals, communities and the state to consider the common good and welfare of the society and the planet as a whole. 7
Hadith • ‘The world is green and beautiful and God has appointed you his trustee over it’ • ‘God is gentle and loves gentleness in all things.’ • ‘Pay the worker before his sweat dries’ • ‘He is not a believer who eats his fill while his neighbour remains hungry by his side’ • ‘Little but sufficient is better than the abundant and the alluring.’ • ‘The special character of Islam is modesty’
8
• Thus, Islam preaches ecology, kindness, labour rights, social justice and sustainability. • There is a significant overlap between original Islamic principles and SRI aims. • Traditionalists might argue that using SRI’s sophisticated screening methods is incompatible with the spirit of Islam.
9
Search for knowledge • Hadith: ‘The search for knowledge is a sacred duty imposed upon every Muslim’ • Islamic Principle: Ilm , meaning knowledge, the pursuit of which is a duty for all Muslims, male and female.
10
Danger I • Most unfortunately, there is a vast difference between the spirit of Islam and what occurs in practice. • Once the novelty of Sharia-compliant instruments has worn off (by not achieving what Islam recommends), there is a danger that Islamic Finance gets dismissed as a gimmick by the general public. • Many jaded Islamic Finance users will revert back to conventional finance; compromising the future of Islamic Finance 11
Danger II • This threat is immediate, bearing in mind, the dearth of adequate supervision in many jurisdictions and the forthcoming problems caused by snake oil salesmen. ( http://elgamal.blogspot.com/search?q=snake+oil )
• A unique window of opportunity(IF becoming an attractive alternative to conventional finance) risks being lost forever.
12
Optimising Islamic Finance I • For Islamic Finance to fulfil its full potential, it needs to be superior to conventional finance, not merely equal to. • Thus, financial returns on Islamic Finance instruments must be comparable to conventional financial instruments and follow the spirit of the Koran and the Sunna.
13
Optimising Islamic Finance II • The challenge is ensuring both financial returns and ethical quality. • To achieve this, Islamic finance must upgrade from Sharia-compliance to Sharia-based SRI. • By doing so, Islamic Finance will empower itself to become an epoch changing finance.
14
Optimising Islamic Finance III • SRI in the 1980’s, moved from politicalcorrectness (e.g. Avoiding investments in Apartheid South Africa) to positively changing users life. • Value-added: Companies satisfying SRI principles produce (on average) better longterm returns as compared to their counterparts. 15
Main Challenge • Ensuring not only the financial returns but also the ethical quality of financial products supplied to the public under the Sharia based SRI label. • Incorporation of SRI screening methods in the Sharia audit process is a Sine Qua Non.
16
For transition to occur successfully We need: • Fundamental research on the Synergies between Islamic Banking and Ethical/SRI • Creation of a framework for the reaping of Synergies. • Research must be conducted by neutral organisation(s). • Not by any entity subject to a conflict of interest. 17
Caveat • Transparency is a non-negotiable in SRI. • In contrast, Sharia Board structures and functions are often viewed as too opaque. • To vet Sharia Based SRI financial instruments: – Transparency and availability of Sharia SRI audits (especially to the consumer ) – Ideally creation of a ‘case law’ databank
18
Conclusion • Fusion between Islamic Finance & SRI without serious groundwork is wishful thinking. • Crucial research work to be performed before this can be envisaged. • Pragmatically, in the short & medium term there are definite synergies that can be achieved.
19