Opinion: Rebranding of Islamic Finance: Participation Finance

RUSHDI“A name is a label, and as soon as there is a label, the ideas disappear and out comes label-worship and label-bashing, and instead of living by a theme of ideas, people begin dying for labels…” Richard Bach.

Is there an Islamic shoe? Islamic toll road? Islamic power generation station? Islamic airport? Islamic mix-use (commercial/residential) tower?

Is there a pressing need to identify ourselves, differentiate ourselves or stand out from the crowd? We want to stand out, but also fit in, correct? But, why?

Is it an insecurity? Is it a badge of merit? Is it declaration of arrival? Or, is it expected?

But, Saudi Arabia, having the largest Islamic assets and liquidity, does not have one financial institution with the name “Islamic” in its title.

But, there are many people who convert (revert) to Islam, but continue to keep their ‘non-Muslim sounding’ birth/family name.


At a general level, labels provide a mental picture of the subject matter or event based upon our experiences and exposure. For example, the word ‘Hajj’ has instant connotation and connection for Muslims as the fifth pillar of Islam, and, for educated non-Muslims, it’s about a pilgrimage to a holy place.

At a specific level, labels define people (president, ruler, emir, sultan, etc), product (Big Mac of McDonald’s), services (consulting of McKenzie), companies (photocopying and Xerox), countries (Turkey and secular democracy), and movements (Occupy Wall Street or Arab Spring).

But, labels tell only part of the story, and, at times, it may produce misleading stories causing misinformation and ensuing myths. Now, to address the, say, myth, it then requires an information or damage control campaign.

Faith & Finance

When words like Islam, Buddhism, Hindu, Christian, Catholic or Jewish are used, they are linked to the followers, scriptures, scholars, rules of engagement and the rituals of the said faith. Yes, there may be areas that overlap, like consumption of foods, i.e., Kosher food by Muslims and Halal food by Jews.

But, religion is also an emotional (or even political) issue, where logic may not have appeal or acceptance. For example, there may be overlapping usage, like religiously slaughtered meats, but there may be challenges in introducing Islamic banking in Israel or (for sake of argument) Jewish finance in Saudi Arabia or Malaysia.

[Furthermore, to the purest, which is not a small percentage of the Muslim population, they do not believe today’s Islamic banking is Islamic enough. To them, it’s “smoke and mirrors”, “semantics” (where profits is inserted for interest), and/or peddling religion for profits. Finally, they believe the Shariah scholars have forgotten their motivation for entering this niche market, like research, and have sold-out for money as witnessed by the many paid-for Shariah boards they serve upon.]

For some Muslims residing in Muslims countries, deemed as Islamic finance hubs, like Malaysia, UAE, Pakistan, etc., calling the niche market by its birth name, Islamic finance, is important and does not require any modification. These same people may alter their thinking on the label if they are exposed to the challenges of bringing Islamic finance in some Muslim and non-Muslim countries, where there is vocal anti-shariah movement or where its politically sensitive.


One of the most often heard statements at Islamic finance conferences, after standardization, has been, “Islamic finance is not just for Muslims, but for all of man-kind because of its ethical orientation”. Furthermore, there is much promotional and marketing literature that dispels myths about Islamic finance, including its application for all people.

But, the comments from non-Muslim colleagues is “if Islamic finance is for all, then why continue to use the term ‘Islamic?'” It made sense to them and others to label it Islamic finance at the start of the movement, early 1970s, to make it stand out, but, now, it should focus on its substance.

The essence of Islamic finance is its participatory nature, where both parties have a stake in the outcome of the venture. It is a combination of venture capital, private equity and mutual funds, as the common denominator is due diligence on the merits of the venture rather than on the size of the collateral or guarantees from the “borrower”, in theory.

[Today, Islamic finance is deposit taking, collateral based finance, hence, very little venture capital. But, as an equity culture takes root in Muslim countries, like Malaysia, and, as capital markets surpass bank loans, risk capital will be deployed to facilitate youth-led entrepreneurial initiatives.]


In fiercely secular Turkey, a Muslim G-20 country, Islamic or Shariah finance has existed since Malaysia’s entry into the space (1980s), but the label is linked to its substance. It used to be called Special Finance House, and, now, it is called Participation Finance. The name implies an equity approach to financing, as there is “skin in the game” or risk taking by the financial institution, hence, risk sharing and not shifting.

Does the Turkish approach to Islamic finance, calling it Participation Finance, have universal appeal?

Purist & Secularist

Participation finance, beyond describing the substance of Islamic finance, has appeal to Muslims and cross appeal to non-Muslims.

To the Muslims, it better manages their expectations, as today’s Islamic finance is more shariah compliant than shariah based. It does not have the purity the name “Islamic” implies, but it is moving towards purity. Furthermore, it removes many of the “rejectionist” arguments as mentioned above.

Finally, in Muslim majority countries like Nigeria and Arab Spring countries (of north Africa), where there are political sensitivities, the Turkish approach works well. For example, when Islamic banking was pushed by Nigerian Central Bank Governor, Sanusi Lamido Sanusi, in 2011-13, it caused much fear mongering, allegations of favouritism towards Muslims, comments on encroachment of the constitution, etc. Thus, if the approach by the Governor was aligned to Turkish approach, it may have eliminated most of anti-shariah sentiments and allowed for non-threatening inclusive approach.

In non-Muslim countries, like US, Australia, India, France, etc., the anti-Shariah movement has made Islamic finance a non-starter for, say, a deposit taking bank. They have linked, without evidence, Islamic finance to financing extremist movements, made it a political issue when it’s really a financial issue, and even managed to keep segment of Muslims from participating as labelled them non-patriotic.

Yes, there is Islamic finance in UK, but it seems to be the exception rather than the rule in non-Muslim G20 countries. The recent comments by UK Prime Minister David Cameron on commitment to Islamic finance were heard around the world, but it’s the follow-through and de-coupling from personalities pushing it that will allow it to have real traction.


“Don’t rely too much on labels, for too often they are fables.” Charles H Spurgeon.

Thus, for Islamic finance to have reach and depth, it must focus on its substance over its form, as Participation Finance is for all of man-kind. – November 12, 2013.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.