Dr. Terry Lacey, founder of the CD Group of Companies, a charity which provides training, skills and capital to NGOs tackling poverty, has an editorial on Shari'ah banking in the Middle East Times today. In addition to dispelling some of the common myths surrounding Shari'ah-compliant banking (e.g., that it is a part of a "creeping political Islamist agenda"), Dr. Lacey reminds us what is largely overlooked in the Islamic financial industry today, the "potential convergence of interest between the positive social targeting of Sharia banking alongside Western ethical funds, environmental funds and international aid."
Will the development of Islamic finance be strengthened by a literalist, rule-based approach as we have now, or by a broader vision of helping the poor and those in need through ethical investing using Shari'ah-compliant methods?
My personal belief is that developing Islamic finance with a focus on ethical investment with oversight by a broad group of Muslim scholars will allow Islamic finance to grow. Many more people are willing to pay slightly higher costs or get slightly lower returns if their investment is ethically-based than simply for products engineered to be strictly Shari'ah-compliant but investing in the same manner as conventional financial products.
Furthermore, more middle-class people and non-Muslims will invest in ethically-based Shari'ah funds than in the current products. This will make these funds more effective in breaking down the myths such as the one cited above, which was the focus of Dr. Lacey's editorial. More importantly, by broadening the appeal of Islamic financial instruments and the pool of money financing them, the liquidity of such products will be increased, which further broadens the pool of potential customers by reducing the size and burden of the investments.
If socially responsible/ethical finance has been able to effectively compete with conventional finance, then it seems clear that an Islamic version of social & ethical finance will be equally well placed to be competitive with conventional finance. The areas in which socially responsible, ethical Shari'ah finance has the greatest potential are also the areas in which it is least represented. Dr. Lacey notes that "Of the Islamic finance institutions in the world, almost one-third are registered in Western counties, half are registered in six key low population upper income countries (and 10 percent of these represent Western banks), while only 11 percent are registered in six high population low income countries where most of the world's Muslims live." An opportunity to help Muslims invest according to their beliefs and also provide assistance to the poor and needy in these countries is available. Will it be taken advantage of or will it continue to be ignored?