Islamic finance underpins its financial instrument constructs in alignment with best global business practices

By NORIPAH KAMSO

The week of March 18th, I was back in Beyrouth (Beirut), Lebanon, for the fifth time. I was there to lecture on Islamic capital markets as one of the courses for the Master of Laws (LLM) degree.

As I walked each spring day from my hotel to lecture at the 140-year-old Universite Saint-Joseph de Beyrouth in the posh French-speaking area of Achrafieh, I passed a pink-painted three-storey mansion. It is immaculately designed with French architectural windows and patios.

I was told that it is one of the mansions of Carlos Goshn — the controversial former chairman and CEO of auto giant Nissan Motor Co Ltd, Mitsubishi Motors Corp and Renault. He is apparently of Lebanese origin, born and raised in Brazil and live in France.

In March, Ghosn was granted bail by the Tokyo court after months in jail. What is baffling in Ghosn’s case is that he did wrong in Nissan for financial misconduct, including under-reporting his income for a five-year period.

Most other executives were caught resorting to mischief to bolster revenues and profits, the most common, being concealing material and product defects, falsifying data on quality testing, or infringing regulatory requirements. Their motives, though despicable and unlawful, are borne out of despair, hence, the urge for wrongdoings becomes expedient.

“Looking back at Ghosn’s reign, it is clear that too much power was concentrated in one man, and that management did not do enough,” said Nissan CEO Hiroto Saikawa.

Ethical Traits

I shall revert our observations by revisiting Japan, currently the world’s third industrial powerhouse. Decades ago, they were right behind the US until it was eclipsed by China. At its height, their companies became household names.

Now, a few names have dropped out of shade of its glorious past, or were bought over by non-Japanese owners. This industrial might was built on incessant product and process quality, improvements, technology refinements and advancements, perseverance and unrelenting attention to details.

These ethical traits are anchored on the culture, virtues and faith of the Japanese people. Despite its deep integrity, Japan is no exception to nefarious practices by its top executives like Ghosn.

New variants of breaches promulgate, and new forms of scandals and crises set in under the watchful eyes of regulators or governing bodies of industries.

The imposition of higher penalties, tightening scope of and conditions of operations, instituting more focused standards, increasing frequency and depth of supervision, supplementing the coverage of statutory requirements, and myriads of other related rulings do not seem to mitigate, nor curtail scandals effectively.

The next best action is probably to retrace the effects of human character, moral and guiding principles. In some instances, we need to embrace a belief system on business conduct and practices which can lead us to the matter about code of ethics.

On balance, business goals have gained traction again, as they realign their focus on non-economic values and sustainability.

Based on best practices by regulators, stewards in business are realigning to build their business strategies based on the venerated acronym of the 3Ps: Planet, People, Progress (in this order). The Value-Based Intermediation (VBI) by Bank Negara Malaysia has become eminent and all-encompassing in aligning our banking business practices with ethical and sustainable practices.

Global Level

At the global level, I also saw global brands aligning their businesses with ethical values, as demonstrated at the Global Ethical Finance Conference 2018 in Edinburgh this past October.

Interestingly, this pursuit was championed by the Royal Bank of Scotland in collaboration with the UK Islamic Finance Council. The Church of Scotland and the United Nations Sustainable Development Programme (UNDP) were also partners.

Truth be told. Here, I witnessed the interplay of the 3Ps. In making our “Planet” a sustainable and liveable abode for future generations, UNDP — the promoter of the Sustainable Development Goals (SDGs) — necessitates the collaboration of governments, the private sectors, civil societies and citizens.

From the perspective of “People”, the focused goals of banks and impact investment managers include poverty alleviation, zero hunger, climate change and economic equality.

Amazingly, the Church of Scotland has always been a fervent supporter of both Islamic finance and ethical finance going back to 2014. After six years of intense research and close discussions, “Progress” was validated between the Church of Scotland and the UK Islamic Finance Council.

It might seem unbelievable to us Malaysians, but I witnessed two different religions agreeing to co-develop an ethical finance solution open to all society based on the shared values between the two religious values.

Islamic finance, being rooted in ethics, in effect underpinned its financial instrument constructs (including financial products, investments, risk-profit sharing, non-ambiguity and non-discriminatory rights and responsibilities between contractual parties and legal statue and recourse) in alignment with best global business practices.

By embedding ethical values in business and investment practices, we are reshaping our ecosystem. Equally important is the reshaping of human behaviour.

Will this eliminate completely corrupt tendencies of greed? Or vile acts of desperation in the advent of failure or underperformance?

Maybe not entirely. But at best, there will be fewer willing conspirators. It is hoped that the alignment of business practices with ethics will partially warrant that the “Planet” and “People” will sustainably embrace “Progress” for future generations.

• Datuk Noripah Kamso, former CEO of CIMB-Principal Asset Management Bhd, is now the chairman of Bank Kerjasama Rakyat Malaysia Bhd. She teamed up with her husband Fadzlullah Shuhaimi Salleh for the lecture series. The views expressed are of the writer and do not necessarily reflect the stand of the newspaper’s owners and editorial board.