The rapid growth of Islamic banking and the emerging global market for Halal products and services represent the tip of the iceberg of the impact of Islam on commerce, a convergence which we believe is destined to be one of the defining factors of the coming decades.
These two industries are effectively the twin cornerstones of the Halal Market economy. By this, we are referring to a dynamic market arena for Halal products and services, trading according to halal transactions and contracts, using – ultimately – halal currencies.
The two major components of this market are Halal food and Islamic finance. These two elements represent an emerging market force that is effectively the direct result of the impact of Islam on commerce.
These two – food and finance – are not separate markets. They are rather two faces of one coin, with similar developmental histories and with many parallels. Both began out of the need of the Muslims to have Halal goods and financial services. Initially, both served a primarily Muslim market.
This has been basically paralleled by the development of Islamic banking. Initially developed by the Muslims to serve the needs of the Muslims, the major banking houses around the world, mostly from the non-Muslim world, have been quick to recognise the potential returns.
Islamic banking is a work in progress, not a finished product. Like the market for Halal products, it is a fledgling industry now developing global standards. Both Halal food and Islamic finance are driven by two dynamic – and sometimes opposing – forces that fuel their growth and determine their shape; the desire for growth and innovation – and therefore market share – and the need to remain within the parameters of the Shariah of Islam.
Recent geopolitical currents have driven Islam firmly into the public awareness, most of it negative, but that is not necessarily a drawback. Both Halal food and Islamic finance are riding on this wave of heightened awareness and curiosity, which is not about to diminish. And there are other factors at work.
Islamic finance similarly must represent justice and equity in the transaction, abandoning riba, removal of doubt in transactions, sharing risk and reward in investment.
Halal products and Islamic finance are the two main components that comprise the impact of the Islamic Shariah on the world of commerce.
One of the perceived weaknesses with the Islamic banking sector is that it is not connected to any real market or industry; it is still, like the riba-based banking system, still primarily concerned with ‘making money’ as opposed to promoting trade and production. As an industry, it is still focused on the same issues as the riba-based model. The development of the Islamic banking system is a work in progress. It is only a step. The danger is that it will remain a banking-based financial model instead of a trade and production-based model.
I believe that it is fair to say that one of the contributing factors behind the Muslim world’s general backwardness has been the lack of readily available venture capital. Is the job of the Islamic banks? Someone must take the lead in developing investment models, along Shariah-compliant lines, that will really develop the economy – create wealth, not just make money for ‘the Money’.
It is time that the Islamic banking industry looked more closely at the role that it plays in promoting industry and trade.