Sun, Aug 31, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Islamic Finance Intelligence

Editor's Note: The Conquest of Kafiristan, Bernardo Vizcaino, CAIA

Thursday, September 02, 2010

It was in the year 1896 that the ruler of what is now present-day Afghanistan launched a final attempt at conquering a stubborn northern province in the Hindukush, one that was known for its predominantly non-Muslim inhabitants. Hence the name given to this region was that of Kafiristan, the land of the unbelievers. It was a small expansionary endeavour in the late 19th century, a far cry from the large scale Ottoman challenges to Christendom (such as the one that ended under the walls of Vienna in the year 1683), but it provides us with an interesting backdrop for discussing Islamic finance. This is an industry that has developed with contributions from both Muslims and non-Muslims alike. Furthermore, the products & services are not only offered within the historical boundaries of the Muslim world, but across jurisdictions from all over.

The N Word

Islamic finance presents us with a remarkable opportunity to promote dialogue and understanding, although it is rather unfortunate that we seldom hear about this particular aspect. Perhaps it is taboo to openly talk about religion (even in a faith-based environment) or perhaps the interactions between Muslims and non-Muslims have become so casual and 'normal' that they pass seemingly unnoticed. "People getting along just fine" is not an enticing headline, it doesn't sell newspapers. For whatever reasons, we rarely discuss this N word: Non-Muslims, and more specifically the role and the contributions that these non-Muslims have had or what role they play in it. Perhaps it is political correctness, indeed the term non-Muslim is much kinder compared to 'heretic', 'unbeliever' or the less apologetic 'infidel'. Even the use of the arabic term kafir (plural kuffar) has been discouraged (seen by some as derogatory).

Non-Muslims represent a significant component of the human capital in Islamic finance, many having brought extensive experience from the conventional financial world. At the same time, a new wave of young Muslim professionals are gradually filling the industry ranks as they seek to directly engage the industry (and their faith). Wait a minute, I've seen this movie before: Muslims and non-Muslims coming together and delving into issues of faith and God.... the perfect script for a summer blockbuster that likely involves conflict and dis-chord. In practice though the outcome in Islamic finance is very much anti-climactic, we see a dynamic and peaceful integration of multiple backgrounds, cultures, races, and faiths.

The J Word

Of course it is no mystery that Islam has expanded throughout history, it has done this both peacefully and under the sword. It is no different to the other major religions of the world, although you would struggle to find an equivalent in Islam for the Spanish inquisition, for a Torquemada or the Encomienda. If you are rushing to Google allow me to save you some clicks of the mouse, the latter refers to the worker camps that transformed the Americas into a cultural wasteland. The inhabitants of Kafiristan might have been converted to Islam, but history has shown that this was not always a priority (or even a goal) of Muslim expansion, it responded more to political and economic requirements rather than the urge to indoctrinate neighbouring lands. The concept of freedom of religion is part of the teaching of Islam and while it might have been at the discretion of the Afghani ruler it has been exemplified in many different occasions across antiquity.

Nonetheless some Western commentators have been more than eager to saturate any discussion about Islam with the J word: Jihad. There have also been plenty of attempts to demonize Islamic finance itself by labelling it as some sort of 'financial jihad'. This is rather ironic (if not very unintelligent) since the industry is an example of modern Islamic principles being put into practice, a transparent and pragmatic exposition of the values of Islam. Not only that but jihad is not a synonym for holy war, its meaning is multidimensional and by most observers it constitutes a prompt for internal self-discovery rather than an external directive. I wonder if those same commentators are familiar with any other concept beyond their narrow definition of jihad.

Some individuals assume that because a Muslim ruler declared a holy war sometime in the 16th century this somehow equates to Muslim society today. The same faulty logic would suggest that a modern day Christian would be an accessory to the Spanish inquisition or should answer for the cultural obliteration of the native Americans! Lets remind ourselves that we should learn and appreciate history, not be the slaves of it.

To Read or to Write, That is the Question

So what is the role and standing of non-Muslims in Islamic finance? Recently, a discussion in our online forum (see reference link) revolved around whether a non-Muslim could make inroads into the field of Shariah advisory. This raised the additional question of whether a non-Muslim could become a Shariah scholar (as well as whether a scholar can be a man or a woman). While I am not aware of any precedent for a non-Muslim scholar I doubt this would be possible. However, the short debate did highlight an area where frictions could arise even though they rarely did as reason and understanding prevailed.

This might be a sensitive issue, but it boils down to a very simple distinction: having the ability to issue/write a fatwa is different from having the knowledge to read/understand a fatwa. In other words, the focus should not be on Shariah scholars but rather on compliance officers. Our attention seems to be geared towards the knowledge and intention of the individual that wrote the fatwa for the financial product. However, lets also focus on the knowledge of the individual that is tasked with digesting such a fatwa and implementing its message within the financial institution.

Should we expect every compliance officer in Islamic finance to be Muslim? This might be impractical for boutique firms and could create yet another bottleneck of human capital. Instead, we should ensure that compliance officers are well-trained in Shariah, shower them with plenty of helpful tools, and ensure that their roles & responsibilities are better defined. It is curious that when you perform due diligence on a fund manager we will direct our queries to the head of risk management, trading teams, or chief financial officer. However, when it comes to matters of Shariah compliance we are directed to an external individual, sometimes located multiple timezones away, who probably has had a few days of interaction with the financial institution and maintains an arms-length relationship.

It seems that the understanding of fatwa (and that of Shariah itself) has been outsourced to this third party, which sits outside of the financial institution. Thus when you inquire on the Shariah compliance of a product you are invited to refer to the Shariah supervisory board (often comprised of three or more well-renowned Scholars). Of course one cannot downplay or diminish the importance of scholars in this process, but shouldn't we also be directed to talk to the Chief Risk Officer or Chief Compliance Officer or someone in a similar capacity? It boils down to whether Islamic finance and the understanding of the principles of Islam is to be an internal function, rather than an external one. What is the point of having an investment bank launch an Islamic product (with all the corresponding bells and whistles) if nobody within that organization understands an iota of Islam?

The Modern Day Nuristan

Upon the conquest of Kafiristan, the region came to be known as Nuristan, the land of light. Islamic finance has the opportunity to be regarded as a new land of enlightenment, where we can shine a spotlight on its multi-ethnic and multi-cultural amalgamation. We might as well regard Islamic finance as a large 'special purpose vehicle' as it can be used to exemplify a progressive & modern Islam, a testament to its inclusiveness.


Your feedback and comments are very important to us, please feel free to contact the author via email.



Article Link

<< Go Back to Archive

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Study shows what resonates with investors: 'Unwavering', 'passionate' beats 'committed', 'dedicated' and more surprises[more]

    Komfie Manalo, Opalesque Asia: A new study by Pershing Square, a unit of BNY Mellon company, showed that an effective value proposition strengthens audience connections and fosters growth, yet many advisors have had little objective guidance in formulating such statements until now. In the

  2. Comment – Why you should avoid the hottest hedge fund hands, Swedroe attacks Hussman over risk management, relative value strategy[more]

    Why you should avoid the hottest hedge fund hands FromCNBC/Yahoo.com: Investors who don't have money with Pershing Square Capital Management are likely salivating at the hedge fund's industry-leading 26 percent return from January through July. But investing with Bill Ackman and other to

  3. AIMA makes 'the case for hedge funds'[more]

    Bailey McCann, Opalesque New York: The Alternative Investment Management Association (AIMA), the global hedge fund industry body,

  4. Managed futures' global diversification is important in next phase of economic recovery[more]

    Komfie Manalo, Opalesque Asia: The global diversification provided by managed futures may prove to be extremely valuable as the markets enter the next phase of the economic recovery, said Campbell & Company, a pioneer in absolute return invest

  5. Ex-UBS prop trader's hedge fund Manikay Partners eyes UK launch[more]

    From eFinancialnews.com: Manikay Partners, a $1.7 billion US multi-strategy hedge fund set up in 2008 by a proprietary trader from UBS with backing from Goldman Sachs, is planning to open in the UK. New York-based Manikay's move into Europe comes after Financial News revealed on Monday that Aurelius