Tuesday, May 6, 2008

The Challenge of Islamic Finance (Part 2)

Quote of the day:
'It is said that the world is in a state of bankruptcy, that the world owes the world more than the world can pay.' - Ralph Waldo Emerson

Commentary for the Week:

The Challenge of Islamic Finance (Part 2):

Last week we began to scratch the surface of the challenge ahead for Islamic Finance. The idea there being that the purpose of Islamic Finance cannot be to replicate injustice. There must be a higher aim - and a better process put in place to reach those heights. A system based on indebting people and putting them on a treadmill against inflation is perhaps leading us to an end that will be unrecognizable from where we began. Aside from the various shortcuts afforded to us by virtue of birth and class, the primary way to own assets is by way of mortgages. Already we are at a point where things such as homes / cars / machinery / land are unaffordable without debt. In such a system, who owns whom?

While access to the financial system and debt is thought to have increased our standard of living such that we can now engage in such debates, on whose terms we engage in these debates remains in question. We are so vested in this cycle of credit & repayment, that even miniscule changes to our outlook seem drastic and idealistic. Thus, while it is easy to demonize bankers and politicians for their various shortcomings, the responsibility for change is more widely distributed. In my opinion, changes seldom arise from within the sources of the problem, so we must end our dependence on financial expertise that is short on wisdom. Indeed, even my own meticulously researched solutions make perfect sense only at moments of perfect idiocy. The purpose for this column, can therefore only be to suggest directions and inspire dialogue - not demand allegiance to a preconceived end.

So how do we get from where we are to where we want to move towards? First we must identify areas where we must be involved as Canadians - able and privileged to have input into policy debates relevant to our lives. We must also recognize that we are missing the boat on a recent development that is exceedingly positive. We are once again following good people, but following nevertheless, into the realms of Ethical Finance. As a movement, Islamic Finance has had very little to do with developing Socially Responsible and Ethical finance other than prohibitions against alcoholism. We have yet to become involved in these debates beyond perfunctory levels. While it should make us happy that Good people, regardless of whether they are Muslim, have reached a point in their ethical consciousness that leads them to ask value-based questions - where is our place at the table? Who among us represents our concerns in a serious manner? Could it be that while we grapple with the problem of national economies, our input into the moral economy of the world has been absent?

One of the opportunities ahead of us is to really take advantage of the blessings of being in a place where we have some genuine choices. If we make good choices with our funds, attention and involvement today, future generations might have a genuine choice between conventional and Islamic Finance tomorrow. For example, there has been a sea change in Canada as far as socially responsible investing is concerned. From a small, niche market serving 'hippy-types' (not the best choice of words), ethical investing has grown into the predominant theme of investment conversations in boardrooms today. This is a movement that we need to involve ourselves in, immerse ourselves in and guide as much as possible. It is a smaller, more immediately manageable challenge; and one feels that it has come at the right time in our development for us to engage and perform with purpose. Asking one's broker / advisor / investment banker whether they allow investments solely into at least clean if not debt-free businesses is now a simple conversation to have. How many of us have had it? How many of us have defined for our service providers what we mean by 'ethical'? Do we really trust the same people that got us into these problems through their faulty gate-keeping of funds to define those ethics now? Why the pliancy and quietude? Is it that our backbone is reserved for US foreign policy debates or can we make it work in other situations as well?

Most importantly, how do we begin to have intelligent conversations about finances ourselves, such that we do not need humble intermediaries such as myself? These are the questions of the day, and I look to you to answer them ...

To be continued ... (but replies and commentaries are very welcome)

Industry News:
1. A contrarian opinion on financial stocks ... DeCloet says this may be a decent opportunity to buy, but since nobody has been able to time investing exactly right, do you buy on the way down, or the way up? ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wrdecloet13/BNStory/robColumnsBlogs/home

2. Keep an eye on this case ... a lot of unsuspecting investors were manoeuvred out of their retirement savings by Portus offering a principal 'guarantee' ... the OSC's record of convictions in fraud cases is not excellent but this is an open and shut case - the fraud was clear and egregious ... stay tuned ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wmanor1113/BNStory/robNews/home

3. Time for Canadians to pay attention to personal finance issues ... the results of this survey are not encouraging ... http://www.investmentexecutive.com/client/en/News/DetailNews.asp?id=41897&IdSection=3&cat=3&BImageCI=1

4. What does the subprime credit mess have to do with you as an average Canadian? ... http://www.canada.com/nationalpost/financialpost/story.html?id=3fa6f59d-ef5a-4fa6-a937-25973eeb8af5&k=97150

5. Insight into how the world of stock-trading is changing in Canada ... http://www.theglobeandmail.com/servlet/story/LAC.20071115.RWILLIS15/TPStory?cid=al_gam_globeedge

Economic News:

1. Goldman Sachs says the loonie 'could' go back under par against the US$. Well, technically anything is possible but is it likely? As producer's of oil and gold and other commodities, one would think not. But then again, these are currency markets - what is not probable is still quite possible ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wloonie1113/BNStory/robNews/home?cid=al_gam_mostview

2. StatsCan finds that companies with more of an 'international' orientation are better for the economy ... bit of a stretch to say foreign takeovers are the way to engender 'international' orientation though ... surely there is benefit in exporting finished goods and services made by Canadian-owned companies instead of simply exporting resources as a branch operation of an American conglomerate? ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wmultinationals1113/BNStory/robNews/home

Islamic Finance:

1. A 'Muslim' car !!! ... wow! ... and you thought Islam was only for people?! ... can 'Muslim' bulldozers be far behind? ... http://news.bbc.co.uk/1/hi/world/asia-pacific/7089707.stm

Management Training:

1. The difference between 'Marketing' and 'Hype' ... why hype can get you into the trouble that marketing was supposed to get you out of ... http://hbswk.hbs.edu/item/5810.html

2. An absolutely excellent (but long) interview on Business Strategy - what that means to many companies right now & what it should mean to people managing them ... talks about capitalizing on your own strengths and processes but also being ready for windows of opportunity ... how to make the organization ready to capitalize on external changes, and then executing ... http://www.mckinseyquarterly.com/Strategy/Innovation/Strategys_strategist_An_interview_with_Richard_Rumelt_2039

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