The financial system has played an active role in the accelerated development of the world economy, particularly since the Second World War. However in recent years the system has become plagued by persistent crises, one after the other, making it clear for all that a financial system based on interest, produces a debt-ridden society.
The world is drowning in debt: personal debt, credit card debt, mortgage debt, national debt, sovereign debt. Our financial system finances the consumers, the businesses and the government, including local government institutions, by creating debt. In the U.S., federal debt is over $14.5 trillion and states like California are basically bankrupt. In Europe, Greece is on the verge of bankruptcy. And with Spain and Italy looking to refinance hundreds of billions worth of debt, the crisis appears to be far from over. For all we know, this may only be the beginning.
As a wave of change sweeps the Islamic world and Muslim countries are opening up to plurality and democracy, citizens of these countries now have the opportunity to play their role of a strong civil society. But for civil society to become sustainable, development in indigenous philanthropy is required. The heavy reliance on foreign donors was never an effective solution to local society as it promoted an orientation to the needs and perspectives of the donor, rather than the community served. A heavy or exclusive reliance on government funding is worse as it comes with a heavy hidden tag price. Fee-for-services and other forms of income have also proven to be unsustainable.
In the 2011 federal election, the Conservative Party ran with the promise to drastically lower corporate tax to 14 per cent by 2013. Since coming to power in 2006, the Harper government has already brought the corporate rate from 22.5 per cent to 16.5 per cent, with a further reduction to 15 per cent scheduled for 2012.
The Tories say that a corporate tax cut will stimulate the economy by boosting spending. Those who oppose them say that tax cuts only help the rich because they can lead to a reduction in government revenues that often translates in reduced government spending on important social services relied on by those earning lower incomes.
Recently the Ottawa Citizen reprinted published an article titled “Nobel winner Professor Yunus defies ouster call”. The article mentioned that supporters of Prof. Muhammad Yunus in the West were deeply concerned by what they saw as politicized attempt by the government of Bangladesh to remove him from Grameen Bank which he founded.
The global financial crisis has exposed the failure of the laissez-faire, unregulated free market capitalism. Governments of a number of industrialised countries allocated an excess of $7 trillion in bailout and liquidity injections to revive their economies. Despite this “helicopter money”, capitalist market economies are not yet out of the woods. Sovereign debt is the latest episode.
“Imported” capitalism in the Muslim world has begun faltering. It now appears that the city of Dubai and the much-touted Grameen Bank experiment may not be as successful as they were initially made out to be.
Islamic finance and banking have enjoyed success in common law jurisdictions such as England, New Zealand, Australia and India. In fact, Islamic banks willingly submit themselves to common law courts to enforce shariah-compliant commercial contracts.
Islamic banks in the UK have in their murabahah (Islamic financing) agreements a governing law clause that states: "Subject to the principles of the Glorious Shariah, this Agreement shall be governed by and construed in accordance with the laws of England".
Malaysia's International Shariah Research Academy for Islamic Finance is working with its Middle Eastern counterpart on guidelines to address the number of boards on which scholars can sit to reduce conflicts of interest.
From Ghana in the west, to Ethiopia in the east, to Mozambique in the south, Africa's economies are growing, and even faster than those in almost any other region of the world.
Although severe income disparities persist on the continent, a middle class is emerging. According to Standard Bank, which operates across Africa, 60 million African households have annual incomes greater than $3,000 at market exchange rates. African countries are shifting away from being aid-dependant to increasing trade and investment ties with the world. The Economist reports that trade between Africa and the world has increased by 200 per cent. China's trade with Africa reached $166.3 billion in 2011, according to Chinese statistics. The World Bank said in a report this year that “Africa could be on the brink of an economic take-off, much like China was 30 years ago and India 20 years ago”. With Africa's population set to double to 2 billion in 40 years, huge opportunity exists in Africa.
When Goldman Sachs announced last October that it planned to issue an Islamic bond, debate ignited over whether conventional banks in the West should be allowed to engage in Islamic finance.
The investment bank said it planned to issue a sukuk worth as much as $2 billion based on murabaha, a structure that instead of interest (which is banned by Islamic principles) uses a cost-plus-profit arrangement to pay investors. Some Islamic finance analysts however, questioned whether the underlying structure of the sukuk was really murabaha.
The Muslim world is in a difficult phase. Even though its people comprise more than a fifth of the world's population, and its regions are resource-rich, it produces only around eight per cent of the purchasing power adjusted gross national product of the world. It is plagued by illiteracy, poverty, unemployment, social sterility and macro-economic imbalances.
We know from history, that this was not always the situation in the Muslim world. We know Muslims enjoyed a glorious past stretching over several centuries. They say history is our best teacher, and I believe very important lessons can be learnt and applied from the economic miracle that occurred in the reign of Caliph Harun al-Rashid from 786 to 809 (170 - 193 A.H.).