I have suggested in my recent articles that Islamic finance recognizes this interrelationship between duties and consequences and, hence, places itself in distinct juxtaposition to normative ethical viewpoints that prevailed prior to the global financial crises. By focusing on the ethical dimensions of Islamic finance I have aimed not at assertions of its superiority, but rather at highlighting the context in which ethics can be brought back to play a central role in all of finance, both Islamic and conventional.
The joint emphasis on duties and wider consequences that is characteristic of Islamic finance is now acquiring broader acceptance. It has led, among other things, to the growing sentiment that Islamic finance and socially responsible investment have much in common. I believe that this is correct but would add the following additional perspective: We are rightly skeptical of a self-regulation that is based principally on self-interest.
On the other hand, there is much to be said for a framework of conduct that stresses norms of ethical behavior. Such norms of conduct can strongly reinforce formal regulations and their enforcement. The recognition that ethical conduct is a pre-condition to ensuring the social value of finance suggests the possibility not only of a greater scope for Islamic finance in the global financial system, but also of a convergence of views and values in conventional and Islamic finance. I use the word “convergence,” but what I really mean is an overlapping consensus that emerges among human beings who start with different assumptions and objectives.
Whether you call it convergence or an overlapping consensus, were it to develop further it may well contribute to more productive, stable, and resilient financial systems of a mixed type in which both conventional and Islamic components flourish together. At the same time, this would serve to underscore and give greater relevance to the proposition that Islamic finance springs from a set of widely recognized values—universal values.
Indeed, the appeal of Islamic finance in the modern world lies not in its alienness, or its “otherness”, but rather in that the values it espouses resonate with audiences who are able to see its relevance from a wider consideration of their own value systems and interests. It must be said, however, that Islamic finance faces significant challenges in terms of the market and institutional infrastructure needed to support its resilience and stability.
The values and ethics embedded in Islamic finance constitute its intrinsic strengths, and its moral and social capital that contribute to its broader appeal. But they must be complemented by other measures to promote resilience and stability, which also require robust financial infrastructure in the form of legal and regulatory frameworks, and strong transparency and disclosure regimes.
With its intrinsic strengths, and supported by policy frameworks focused on developing deeper financial markets and stronger risk management capabilities, Islamic finance will be better placed to boost the growth, stability, and resilience of the economies in which it is becoming increasingly important.
