By Rushdi Siddiqui, co-founder and MD of Azka Capital
Conferences provide an insight on the road ahead for industries, products, innovations, and services. The speakers are assumed to know more than most on the other side of the podium.
One of the interesting developments in the Islamic finance conferencing arena has been the introduction of topical issues from the $2.1 trillion halal industry. Is it because there is no ‘new new’ in Islamic finance or the realisation that Islamic finance needs to build bridges to new areas linked to the real economy or both?
Halal, depositors and alternatives
There is a realisation and recognition that, at one level, halal is demand based, hence, one needs to eat, before one invests in, say, mutual fund or bank/sukuk finance a tower. Thus, halal, being a consumer non-cyclical, is actually less volatile (or more stable) than Islamic finance’s traditional area of finance: real estate.
Furthermore, as there are more Muslim depositors than investors (debt culture), there are more participants in halal than in Islamic finance (food over finance). To wit, Islamic finance participants will be almost always be consumers of halal foods, but halal food consumers will not always be Islamic finance participants. The reasons may be due to lack of availability of Islamic finance, especially at retail levels in non-Muslim countries, excessive costs or lower returns, inferior customer service, lack of range of products, etc.
For Muslims, the alternative to halal foods is the acceptable kosher. For example, in the US, Muslims consume more kosher products than Jews, as there are more than 86 kosher products for every one halal product. Thus, halal and kosher are a good example of building bridges of inter-faith dialogue.
The alternative to Islamic finance is the conventional and ethical (which has elements of interest) or cash economy. Obviously, not many ideal choices, but many scholars have invoked ‘law of necessity’ for allowing Muslims to participate in interest based finance as an Islamic alternative is unable and would cause undue hardship. Furthermore, there are a number of Christian and Catholic funds available for investing, but Shariah scholars have not approved them for investment for Islamic investors.
Thus, the ‘acid of purity or authenticity’ may be articulated by following observation:
If there are pork traces of DNA found in halal food products and known by the consumer, the consumption of the product would be prohibited. Only caveat is when consumption of pork would save a person from starvation to death. In Islamic finance, the Shariah scholars have allowed ‘minor’ amount of interest and impermissible income (which must be purified by way of charitable donation) and acceptable amount of conventional debt (screening companies for compliance for investment purposes) as preconditions for participation. Thus, halal can be said to be Shariah based and today’s Islamic finance as Shariah compliant. [Capital structure of halal food companies is conversation for another day].
Islamic finance conferences are about awareness, education and networking, but they are commercial undertaking with profit motives. The injection of halal at such conferences is actually a paradigm shift, as Islamic finance has traditionally ignored its much larger brethren: halal. It should be noted that at halal conferences/events, like World Halal Forum, Islamic finance topics are commonplace and, even, Islamic banks sponsor such events.
The time has arrived to present the halal value proposition at Islamic finance events. Thus, I was requested to present on halal at major events like the Kuala Lumpur Islamic Finance Forum (KLIFF) 2012, World Islamic Banking Conference (WIBC) Asia 2013 in Singapore, and at the Brunei Islamic Investment Summit (BIIS) 2013.
Furthermore, after His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, made the historical announcement in early 2013, about Dubai’s ambition for an Islamic economy, it has institutions, consultants, and conference organisers scuttling to put together a ‘blue print’ of the Islamic economy, including halal.
The conversation on halal must continue to evolve from the academic, certification and research to the practical, immediate and impactful. Put differently, the monetisation of halal needs to entice the Islamic money, as the riba based money has financed halal. For example, one only needs to examine at the balance sheet of, say, publicly listed halal food companies in the SAMI Halal food index for Shariah compliance (financial ratios, especially on debt), and realise quite a few fail the screening process.
Reading maketh a full man; conference a ready man; and writing an exact man.
— Francis Bacon
Halal content at Islamic finance events will produce a beginning of a blue-print for an Islamic economy.
Rushdi Siddiqui is co-founder and MD of Azka Capital, private equity advisory firm focused on halal industry initiatives, and he is an advisor to Thomson Reuters on Islamic finance and halal industry. Views expressed by the author are his own.