In a business world characterised by the current crisis of the US financial and banking sectors that resulted from the implosion of the subprime mortgage industry, and which is affecting a growing number of European banks, the Islamic banking sector is averaging an amazing 15-20 per cent annual growth.
This trend is something Western observers might have a hard time to grasp because it is defined by a set of intangible factors informed by Islam’s basic principles which shape in an all-encompassing way the fundamental premises that underline the structure, organisation and operations of Islamic banks. We better get used to this reality, and figure out its ins and outs, because it is bound to play a key role in global finances. In effect the author points out in the book’s introduction that today there are an estimated 300 Islamic banks and financial institutions representing about 4 per cent of the world’s financial activities (rising to 15 per cent in the next 5-10 years) and managing US$ 500 billion with a potential for about 1.2 billion customers.
Lachemi Siagh’s L’Islam e il mondo degli affari. Denaro, etica e gestione del business is an additional title to the growing list of studies dedicated to Islamic financing, highlighting its actual organisational forms, financial products and ethical premises which underpin its operations and make it what it is.
The book is a valuable tool for stake holders and scholars alike since it hands them some keys to better understand Islamic financing. With clearer ideas Western entrepreneurs and bankers can get involved, create synergies and operate successfully in this complex business and financial reality.
It is a precious analytical and explanatory contribution (a bit repetitive) that shows how wrong and misleading is the idea that the theories elaborated from a Western (especially North American) perspective are a universally valid model applicable to all existing organisation forms.
For Siagh, by focusing on the operational environment of business and on the parameters of efficiency, Western theories fail to see what he believes to be the key element of Islamic banking, namely central role played by its highly intangible doctrinal environment (based on the Sharia) which completely permeates the Islamic banking system and make it so different from its Western counterpart. Indeed, the Islamic economic system “is based on the Sharia which informs its guiding principles, worldview, goals and strategy” (p. 3).
The author insists on the fact that Islamic banks are rooted in a highly charged cultural context that binds banks and financial institutions. In particular the principles that govern the activities of Islamic banks are those of Islam, principles which condemn and ban interest paid on borrowed capital. For, as the author points out, does the Qur‘an not warn that “Allah has allowed trading and forbidden usury” (Qur‘an, 2:275) and did Muhammad not say “Whomever lends or receives money for interest commits a crime as does whomever registers and testifies to this loan.” In short religious principles inform how, what and where Islamic banks can operate (for instance alcoholic beverages, tobacco, gambling, weapons, and pornography are off limits).
As interest free banks they operate on the basis of profit and loss sharing. This way “profits from bank deposits and investments are not fixed and predetermined but calculated ex post in relation to actual earnings. This is the main differences with Western banks, which are interest-based, with interests paid at on both capital raised or invested” (p. xxi).
Another key Islamic principle upheld by Islamic banks is Zakat, namely the annual tithe paid out as a redistributive tool in favour of the neediest segments of the population. And from an organisational point of view, Islamic banks not only have a chief executive and a board of directors but also have a Sharia committee, a sort of ethics committee to guarantee that banking activities and financial products conform to religious and moral principles, which are the raison d’être of Islamic banking. “Sharia is the foundation itself of the organisation’s culture, its lifeblood. Without it, there is no organisation” (p. 117.)
And yet despite the profound differences between Islamic banks and Western banking systems, the author says that Western and Islamic banks are working together more and more. For this reason it is high time for Italy to take advantage of the situation and create synergies that would further the integration of the Italian and Islamic banking sectors as Corrado Faissola, president of the Associazione Bancaria Italiana (Italian Banking Association), and Adan Yousif, president of the Union of Arab Banks, suggest in the preface they co-wrote for the Italian edition of the book.
Indeed this year the first Islamic bank will start its operations in Italy. This is happening in other European countries like the United Kingdom or Luxembourg where in accordance of religious principles Islamic banks have already been catering to the needs and managing the savings of Muslim customers estranged by the western banking system and its profit-centre, cost-effective and ethics-neutral orientation.