Mufti Abdulkadir Barkatulla
Senior Imam Finchley Mosque, London. Sharia Advisor to Banks
Part 2
Beyond Compliance
Moving on from Dos and Don’ts (halal and haram) of Sharia Law, there are certain implied etiquettes suggested by the ethos of Islamic tradition and indirect prophetic directives, which make integral part of Islamic corporate governance culture. These ethos extend beyond shareholders, financiers and management to suppliers, customers, competitors and employees, embracing the spiritual as well as the temporal needs of community and environment. Some of main cultural etiquettes and ethos are briefly examined. There are no official penalties for violation of these guidelines except long term dire consequence of corporate failure and unpleasant outcomes:
a) Baraka – Long term and ultimate progression and development. Prophet is reported to have said: transacting parties have option till they part. Then if they were transparent and truthful in their dealing they will experience baraka following their exchange. And if they were not completely transparent and less than truthful, the baraka of their exchange will be erased. (Bukhari, Muslim) .
Another prophecy is that: vow and (untrue) guarantees, though promotes products but eventually wipes out barkah (Bukhari) . Anecdote to baraka is Mahq, which is to rub out the utility of transaction. This notion is explicitly mentioned in the verse of prohibition of riba in Sura Baqara:276.
b) Samaha altruistic and considerate. “May God bless persons of Samaha in business transactions and at settlement of receivables and payables. (Bukhari)
c) Ishraf – greed, excessive profiteering.
d) Nihla, Teeb-an-nafs - satisfaction, content of heart.
Seven Golden Principles
Islamic corporate governance culture is beautifully summarised in one narration by Muadh ibn jabal:
Best corporate business is where:
1.No under-representation / misrepresentation takes place (full disclosure and transparency)
2.No breach of trust ( false accounting/auditing)
3.No failed delivery undertakings
4.Suppliers are not unnecessarily smeared or de-valued
5.Products and services are not overstated
6.Accounts payables are not withheld unwarranted
7.Accounts receivable are not enforced cruelly.
Effect of non-conformity for Islamic Financial Institutions
Rating agencies, accounts and audit departments and valuers are good at crunching numbers and figure and vet documents and reports. However, Islamic financial institutions have unique characteristics. Measuring financial performance alone is not sufficient. Ethical performance targets and measurement mechanism have to evolve. Regulatory and Sharia non-compliance issues are apparent to deal with. Adherence to Islamic values and code of conduct does pose a daunting challenge. Non-conformity to ethical values poses risk factor unique to Islamic institutions.
There could be hardly any statistical data on scale of performance available in the short lifecycle of Islamic Financial institution. There may have been ups and down in life span of individual institution, but failure at massive scale has only been witnessed in sub-continent of India. As one news report puts it “The failure of Islamic financial institutions is an ideological and ethical challenge to the entire community”
The story goes on: A number of Islamic investment companies in Delhi, Mumbai, Hyderabad and Bangalore have either crumbled, collapsed, vanished or simply gone bust in the last two years. This is real bad news for all those who looked towards these companies or institutions as a halal (legitimate) avenue for investment of their hard-earned savings. If conventional banks fail, it is merely failure of individual institutions. But in case of Islamic investment companies, the very credibility of the concept has come into question.
It is estimated that nearly 100 Billion Indian Rupees deposited with these bodies have either been spirited away or gone into such investments that are not likely to return to those who expected them to yield profits. The rise and fall of several of these investment companies has coincided with the boom and bust of speculative businesses such as share market or real estates. A clutch of companies in Hyderabad acted in unethical style through an advertisement blitz in the local Urdu newspapers. Depositors were lured by expensive gifts, immediate dividends. In Mumbai and Bangalore the Islamic investors’ money fell victim to the artificial boom in real estates.
A detailed analytical study by Dr Rahmatullah of Mumbai concludes: it is pity for Islamic Institution in India to die the infant death or creep and crawl with lopsided growth features like a developing country without protective trade policy.
The study found four financial reasons for collapse and four non-financial factors, namely:
•Low Capital Base
•Low Capital Yield
•High Operational costs
•Non-performing Assets
Among other factors are:
•Poor Accounting Standards – Internal/external audit
•Non-professional Management
•Misappropriation of funds
•Lack of Crises Management Skills
Concluding Remarks
Human living conditions are constantly evolving so are interactive processes and practices. We have been on move gradually from barter economy to gold and silver based medium of exchange to bank notes to plastic cards to electronic funds and so on. Central to all modes have been relative negotiating powers and contractual terms and conditions of exchanging participants. Thus vital to various spheres of activity and modes has been human relational aspect. Fairness and justice are universal values. Gratitude and satisfaction of participants are delicate matters to deal with.
In quantum world of business transactions, whether in goods and services or financial instruments, new dynamics of qualitative aspects explained earlier, is to be part of equation. Islamic Business ethics must aim now beyond compliance to corporate governance excellence and socio-Islamic responsibilities. Concepts of barkah, samaha, and nihla are to be introduced into check list and audit trail of Islamic businesses and institutions. Adherence ensures the long term prosperity and well-being of participants going beyond lifespan of individuals and to future generations.
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