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tion. Non-Western Islamic banks have attempted, for instance, to diversify their activities through the introduction of var- ious types of funds into their remit, but overall progress in the area has not been encouraging. The amount of money flow- ing into Islamic funds from the Muslim countries is disappointing. A very small number of Islamic funds – just 500 plus – are reported, and assets under their management were valued in 2008 at a meagre US $25bn. (approx.), while pri- vate wealth in the GCC alone was esti- mated at US $1800 bn. Participatory finance (PLS) too, as shown above, is not making a lot of headway. For the reasons I have explained earlier, universal bank- ing is not the answer .What is needed is the expansion of well-managed and cost- effective specialised institutions such as unit trusts, investment houses, and mul- tipurpose co-operative societies. • Industrial/commercial units in Muslim countries are on average of much small- er size than similar units in the West. The promotion of micro-financing institutions can do wonders in alleviating the grind- ing poverty in many Muslim economies. The progress of rural (grameen) banks in Bangladesh is an eye- opener, not only because of what they achieved, but for the methods which they used: it was the much-maligned interest-based financing, not the exalted banking without interest, that won the day. This was presumably the message implied in the award of the Nobel Prize to Prof. Yunius, not for eco- nomics, but for peace. • Another problematic matter within Is- lamic finance is that of regulatory rules, procedures, and authority allocation. Much laudable work has been done in this area, but regulation will always re- main a prominent financial issue for both economic and ideological reasons (Stieglitz 2009). The question under dis- cussion is that of the extent of regulation required for financial systems. There is a clash between market freedom and policy intervention, and it is necessary to find a balance between the two and to maintain it under today’s volatile econo- mies, conditions, and social aspirations. The answer, in fact, depends on which party commits the mistake of crossing perceived limits. In the current crisis it is vividly obvious that market misconduct was responsible for the devastation. Nat- urally, the regulators are defiant. Within Islamic finance regulators have the op- portunity to streamline the legal advise- ment system inter alia. The task may, for example, be centralised as is the case in Malaysia. • The Islamic finance needs sound gov- ernance, resistance to the conventional forms and sophistications which may re-


28 Global Islamic Finance February 2011


sult in avoidable complications and costs for a still-tiny segment of the global sys- tem. It is not necessary to imitate each and every aspect of Western finance, simply for the elation of equal competi- tion with the conventional system. • It is futile to think of Islamic finance as being in market competition with the mainstream institutions. Rather, the industry should be aiming to compete on the issues of transparency in con- tracts, promotion of information equal- ity, continual engagement with the real economy and the avoidance of g the temptation of murky dealings. The true area where Islamic finance can lead the conventional system is the moral high ground, and it can lead by example. The current meltdown has shaken the con- ventional system to its foundations and its proponents are realizing the advan- tages of moral trading; they are search- ing for appropriate ethical norms. • With the fast growth of Islamic finance, there has also been an increase in the gap in expectations between Islamic finance practitioners and civil society members about the role that Islamic financial institutions (IFIs) should play in society. There is a growing feeling that speed is no advantage if it leads to deviation from the desired course. The recently released AAOIFI standards cover aspects of social responsibility, including client engagement, employee welfare, charity giving, the environment, investment quotas and others. On these criteria, the overall response of the IFIs on social responsibility is found to be consistently encouraging, even as the performance varies widely between in- stitutions. Improvements must continue until the man in the street feels that Is- lamic finance is doing something for him. Of the 57 Muslim countries, 25 consti- tute make up half of the least developed economies in the world. • Finally, it is important to remember that Islamic finance is no more than a high- way under construction, in a vast road map of economies set to develop with Islamic orientation (38). Related issues must be attended to simultaneously if Islamic finance is to deliver the success which is hoped for. Political will alone is the key which can unlock the doors to prosperity along the right path. And no public policy, however well designed, is worth more than what it is in practice. Governments in various countries - ir- respective of their differences– must demonstrate that Islamic principles can be converted into ground realities to be- come a way of life.


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