And yet while some Muslim countries trumpet the potential role of the Islamic system of financial intermediation in contributing to GDP growth and financial stability because of an ethics-based proscription on speculative activities at regional or national platforms and their proactive leadership in global Islamic finance, it is as if they are metarmorphosized into tongue-tied apparatchiks living in denial when it comes to the World Bank Group/International Monetary Fund (IMF) annual meetings.
The 2011 annual meetings held in Washington last week was no exception except Iran, and even worst than in 2010, when at least three governors of the bank or fund alluded to such a role Islamic finance can play especially in connecting finance with the real economy.
There is a strange unreality about politicians from the member countries of the Islamic Development Bank Group (IDB) when at Islamic finance conferences they blast the causes of the global financial crisis — unchequered speculation based on greed, indebtedness, lack of adequate regulation and low savings - and eulogize the Islamic financial system with its emphasis on transactions backed by real assets and therefore its connectivity to the productive economy and its proscription on usury and uncertainty through deception.
But when it comes to international platforms especially in the West, which as the current US and UK economic and euro zone sovereign debt crisis show is in dire need of reform, it is as if a potential Islamic economic or financial solution becomes anathema and there is a double standard at work: "Islamic finance at home, but riba finance at the international level."
Going through the statements of the World Bank and IMF governors, not a single one from any IDB member country dared to mention, even in passing, the positive contribution Islamic finance has played in their own countries or could play in the global economy and financial system.
What hope is their for the industry and the system if the important Muslim countries including Saudi Arabia, Turkey and Indonesia (the only three Muslim members of the G20) and countries such as Malaysia, which claims to have the most advanced Islamic financial system in the world, dare not speak its name at such platforms as the influential plenary session of the World Bank/IMF meetings?
The only conclusion one can draw is that the very countries are either not convinced themselves about the efficacy of the Islamic financial system or they are insecure about it but tolerate it because of political reasons.
Such a calculating policy or approach is fraught with dangers. It is a fact that in many IDB member countries, the population is about 60 percent to 70 percent between the ages of 20 to 30. Preliminary research also shows that in many of the markets especially in the MENA countries, the demand rivers for Islamic financial products and services are from this age group, the youth.
In fact, sources close to the Omani establishment, for example, confirm that one of the reasons why Sultan Qaboos earlier this year allowed the licensing of the country's two Islamic banks, Nizwa Bank and Al Izz International Bank, was precisely not to alienate the youth of the country who were demanding access to such products and services and who in fact preferred to bank with Islamic banks outside the sultanate in neighboring markets such as Dubai. The objective in fact is to stem the outflow of Omani funds to Islamic banks outside.
Omani sources confirm that there are about $10 billion worth of Islamic deposits waiting to be tapped and that in fact, a third Islamic banking license has been approved in the last few days to local promoters.
And yet not even a considered whisper from Darwish Bin Ismail Al-Balushi, governor of the World Bank for Oman, who spoke on behalf of the Arab Governors, at the World Bank/IMF plenary session last week.
Al-Balushi warned that the recent political events in some countries in the Arab world are a key reminder that much remains to be done.
"In the near term, these events and associated uncertainties are likely to lower economic prospects in the affected countries. At the same time, they present a valuable opportunity to accelerate the pace of implementation of wide-ranging reforms, including promoting further economic diversification and private sector development, and strengthening the financial systems, to support sustainable and inclusive economic growth and secure employment for our people, particularly, the youth. In short, our immediate priority is to respond to peoples' expectations while preserving macroeconomic stability," he added.
To his credit, he did make a passing reference when he welcomed "the intensified focus on regional programs and projects, in collaboration with the regional development banks, Arab and Islamic financial institutions, other multilateral and emerging country donors. The five-country concentrated solar power program under the World Bank's Arab world initiative and the IFC's initiative are two notable cases in point."
In contrast, Iran's governor for the World Bank, Seyed Shamseddin Hosseini, had no illusions about the ills of the global economy and the financial system what needed to be done to ensure its future stability. "The current architecture of the world's economy, due to inconsistency between the financial and the real sectors," he emphasized, "creates unavoidable periodical instabilities. Settling this issue requires amending the current financial and monetary models, and shifting toward new models, such as Islamic finance, which are based on the balance between the financial and real sectors of the economy."
He went on to stress that Iran is developing its capital market, and privatizing state-owned firms. In addition, the issuance of sukuk has increased are done through the stock exchange and OTC. All this has resulted in a 146 percent growth of the Tehran Stock Exchange (TSE) index and a 100 percent growth in market value of the TSE at December 2010 compared with 2007.
The biggest disappointment came in the statement of Ahmad Husni Mohamad Hanadzlah, governor of the World Bank for Malaysia who is also the country's finance minister II. No mention of Malaysia's spectacular Islamic finance success story - both at a government finances level where Malaysia is the only country that has issued three sovereign international sukuk issuances and has included a robust role for the industry in the government's economic transformation program (ETP), and at an industry level where the Malaysian Islamic capital market for instance has broken the RM1 trillion barrier and is projected to reach just under RM3 trillion by the year 2020.
The Malaysians like the other IDB member countries save Iran seem to forget the adage that the more you repeat something the better the chance that it may stick and be heard.
Instead, the governor from Malaysia, in his underwhelmed utterings stressed, that "we are now at a critical junction. Our present actions may very well define the course of global economic growth for many years to come. Since its founding, the scope of the International Monetary Fund's responsibilities has evolved to accommodate the changing world. The fund's role in ensuring the stability and proper functioning of the world's financial system is now more critical than ever. We are looking to the fund to provide a guiding hand and resolute advice to ease the prevailing situations."
One cannot help conjecture that should someone like Mahathir Mohamad had had the platform he would have said especially in today's turbulent global economic and financial dispensation and the share of culpability of the World Bank Group and the IMF: "It is not what the World Bank/IMF can do for you; it is what the emerging countries and the lessons they have learnt from their experiences in managing their own financial crisis and the reforms they have adopted, including the facilitation of Islamic finance, can do and contribute to the World Bank/IMF."
This especially since the World Bank has already formally recognized Islamic finance and has designated it as a priority area for its financial sector program.
