Long before the merchants of Venice in the 1500s, Muslims in the European Middle Ages conducted business as far and wide as Spain and China. With the Quran’s 370-odd references to commerce, Islamic law (which some would term the Shariah) provided Muslim merchants with a moral compass on how to make investment decisions; these teachings can also be reflected upon in our modern corporate world. With a global Muslim population of around 1.6 billion, an Islamic financial industry has developed to provide an alternative approach to finance.
Contemporary Islamic Finance
Currently the contemporary Islamic finance industry ("IFI") is estimated to be worth more than USD 1.66 trillion and growing fast, having fared relatively well during the recent financial crisis. The IFI typically provides finance through a number of profit and risk sharing arrangements based on Islamic principles, such as a prohibition on usury (riba) – a concept shared with the Bible. All financing agreements must be approved by the financial institution’s Shariah Supervisory Board ("SSB"), typically comprised of three Islamic scholars, who review and approve transactions by way of issuing a legal opinion. Those sitting on SSBs must have the authority to issue such opinions, having completed years of seminary schooling.
Apart from lending arrangements, another aspect of the IFI are official Shariah ‘screens’ or filters, applied to market indices, including NASDAQ, the S&P Dow Jones, Canada’s S&P/TSX, and the UK’s FTSE. These ‘screens’ typically remove stocks from industries not compatible with the Shariah, such as alcohol, pork, adult entertainment, gambling, the arms industry and conventional interest-based banking. Companies that are highly leveraged beyond certain thresholds (generally no more than 33% debt-to-equity) are also filtered out. As completely interest-free corporations are few and far between, companies are typically allowed a minimum percentage of profits to be derived from otherwise Islamically prohibited sources (typically no more than 5%). However, any derived profit or dividends received must be donated to an approved charitable cause, before profits can be realized (in what is called a ‘purification’ process).
A Judeo-Islamo-Christian Economic Tradition?
All property is reviewed in Islam as ultimately belonging to God. Consequently, as with Christianity, stewardship and charity is a fundamental principle. Indeed, alms-giving (zakat) is one of the mandatory five pillars of Islam. Closeness to God is something that the Quran shares with both the Bible and the Torah:
“Fair in the eyes of men is the love of things they covet… heaped-up hoards of gold and silver… and (wealth of) cattle and well-tilled land. Such are the possessions of this world's life; but in nearness to God is the best of the goals (to return to).” (Quran 3:14)
“Be Just! For Justice is nearest to piety.” (Quran 5:8)
“Is the reward of goodness aught save goodness? Which is it, of the favors of your Lord that ye deny?” (Quran 55:60-61)
Similarly, Pope Benedict XVI’s encyclical Caritas in Veritate stated that the Catholic Church “rejects the secular logic of separating the market and morality”. Islamic teachings on the economy bear a great deal of similarity with Catholic Social Teachings and Social Gospel ideology. From workers’ rights, environmental justice, animal welfare, or good corporate practice, Islam has much to contribute towards the challenges facing the economy today.
The Vatican newsletter, Osservatore Romano in 2008 stated that, “the ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service.” The IFI can learn much from the great efforts of the ICCR, its members, and the power of shareholder activism. Organisations such as SEDCO and Arabesque have already successfully launched Islamic investment funds that are also compliant with the UN Principles of Responsible Investment. Similarly, Saturna Capital, headquartered in Bellingham, WA, has experienced strong financial performance through its Islamic mutual funds, attracting both Muslim and non-Muslim investors alike.
As a Muslim having gone to a Catholic high school in London, I have seen first-hand the benefits of interfaith dialogue across faith-based communities. Given the global complexities of the challenges for justice in the economy, it is likely to be only a matter of time before interfaith economic dialogue between the IFI and ICCR and its members takes place for positive global change.
 ICD Thomson Reuters Islamic Finance Development Report (2014) at 5.