Faith and Investment
By M. N. Siddiqi

Faith gives meaning to the world in which we live and to life itself. It answers for us such questions as who are we, wherefrom and whereto? Without faith it is hard to situate oneself in the world around. Situatedness in the world is not something one can ignore or be indifferent to, as it is an inalienable aspect of being, of life itself.

It is only natural that something so essential be related to all human activities, including investment. Investment connects our past, in which we earned and saved, with our future, in which we hope some return from it, making our wealth increase, grow. The way we earn and save involves, among other things, ethical choices that reflect our faith. The urge to grow and the desire to see our wealth increase is, likewise, based on our aspirations and plans for the future that reflect how we envisage our ‘situatedness’, a dimension of our faith.

All faith is in essence one: belief in a Supreme Being. The sponsors have asked me to speak specifically for the Islamic faith. I will be addressing three questions: What are the key issues in Islamic faith related policies? Ethical areas of concern that may conflict with my faith related concerns; and the (positive) differences between faith consistent investment and socially responsible investment (SRI).

KEY ISSUES IN ISLAMIC POLICIES

Islam lays down an important principle: la darara wa la dirar , meaning : causing damage and retaliating by damage is not allowed. While recognizing freedom of enterprise, Islam does not allow policies directed at harming others. One is not allowed to do so even when he or she finds himself or herself a target of other people’s damaging policies. This in itself is a corollary of the overall Islamic view on human brotherhood in which we are expected to be caring and sharing vis a vis others rather than engaging in predatory policies. Justice tempered with benevolence is the guideline for business behavior in Islam. An investor is faced with two problems: Not harming others in one’s pursuit of profits and, possibly, promoting the social interest, the general weal, through one’s venture, besides securing his or her own interests. These are no easy tasks as they involve, among other things, the important question of information. All of our investment decisions are done in face of uncertainty. One may not know about the possible harms to others or the likelihood of social benefits being served. We continue to learn in matters of information gathering. The crucial thing for faith-based behavior is, intention and the will to do, not the consequences. Gathering information, managing risks and devising ways for handling uncertainties are dynamic possibilities left to human ingenuity. What faith seeks is to make human creativity and innovativeness serve good intentions. It does not allow one to be indifferent to the public interest or the fate of a brother.

Faith is eternal and universal. It does not give us a list of specific dos and do not-s. Every generation of human beings has to translate its implications for its own locale and times. For us in twenty first century new concerns about environmental damage, weapons of mass destruction and nuclear proliferation have been added to the predatory business practices of the older days listed in some of the sacred texts of the great religions including Islam. They generally fall in two categories: the so called sin industries whose scope is widened or narrowed according to specific faith-traditions; and unethical means such as fraud and false information, etc. All these and any other that humanity may vote to include in the above list are genuine concerns for Islamic policy, as damage must be removed to the extent possible.

This brings the Islamic approach in sharp contrast to the profit maximizing investment approach currently applauded. That approach to private profits bypasses all the concerns highlighted above. This should not be allowed as it amounts, ultimately, to killing the goose that lays the golden eggs.

ETHICAL AREAS OF CONCERN FOR ISLAM

Islam looks upon wealth as means to life. It refuses to recognize it as end in itself. Wealth as means to life is good as life itself is good, the greatest gift of God. (“ O man! What has made thee careless concerning thy Lord, the Bountiful. Who created thee, then fashioned, then proportioned thee?” [Quran, 82: 6-7]) Once wealth is looked upon as means to life all ways of increasing wealth that are life destroying are ruled out. Investment is good insofar as it increases life-sustaining wealth. All investment that fails to qualify on this criterion is ruled out.
It is in this perspective that Islam’s major prohibitions related to investment are to be understood. Lending money with a view to getting back more money after a passage of time violates the norms of justice and equity cementing human brotherhood as it lays the burden of facing risk and uncertainty almost entirely on the borrower. Gambling disrupts the natural nexus of work and reward throwing things to pure chance, thus opening the floodgates of envy and arrogance of unearned wealth, besides diverting talent and energies from productive enterprise to play. Ihtikar , i. e. withholding supplies of essential goods and services with a view to raising prices also negates the humane role of wealth, besides violating the principle of la darar noted above.

Islam does not have only prohibitions. Its emphasis on caring and sharing hastaken many forms, waqf or charitable endowments being one of them. By a waqf deed in the cause of Allah, a person gives away his property for the benefit of society, enabling education, health care, etc . to be funded by waqf income while the corpus itself is held in trust. While not exactly “investment” in economic jargon it is investment in society generating welfare.

FAITH CONSISTENT INVESTMENT AND SRI

Socially Responsible Investment, SRI, is a great step forward. The breaking loose from the strait jacket of neoclassical framework is most welcome. Individualism is rightly discarded as unbecoming of the social beings that humans are. Yet it fell short of recognizing the poisonous effect of another pillar of neoclassical dogma; the cult of profit maximization. Most of the time profit maximization approach is indifferent to distributive justice and equity, focusing entirely on efficiency.

While rightly cited as making possible great strides in wealth creation, it remains true that an exclusive pursuit of efficiency and growth has increased inequality in the distribution of income and wealth, multiplied conflict situations across the
globe and raised anxiety levels all round. Seen in this perspective SRI falls short of meeting the great challenges we face after decades of greed led capitalism. It is time to recognize that there is more to life than material wealth and ethical and spiritual considerations must be brought into focus. Abstracting them away in the name of scientific analysis then relegating them to a separate box of altruistic behavior or philanthropy is not right. Unlike SRI, hich is focused on immediate consequences (and would therefore be satisfied once the social dimension is introduced in private investment decisions), faith based investment has a broader longer-term view on the matter. Investment must meet man’s spiritual and moral needs. These include among other things moderation, non-indulgence and balanced living as all great religions have taught. It also includes the interest of future generations, as faith inspired caring and sharing does not stop at the current generation. Even if SRI can sustain a universal stance, these broader dimensions require faith. But I do not see any essential conflict between SRI and faith based investment. There is no need to pick up a fight.

ISLAMIC FINANCE AS A FAITH BASED APPROACH

Even though the organizers have not asked me to evaluate Islamic finance, I think I owe it to this learned audience to say something in this regard. The formalism from which contemporary practice suffers and the non-fulfillment of the original vision is by now universally acknowledged. Despite these shortcomings, Islamic finance keeps away from sin industries, avoids involvement in gambling like speculation and, to a great extent, maintains a firm link between finance and real assets, thus contributing to stability. It is an alternative to conventional finance that does not violate Islamic Shariah, but it fails to serve Islamic ideals of investment. As noted above Islam relates investment to wealth creation, which is to support good life that necessarily involves spiritual and moral dimensions, one of which is distributive justice. This is what current practice of Islamic banking and finance largely fails to do. Serious efforts are on to correct the course and remove the deficit. After all, thirty years is not a period long enough to judge such a unique venture as reasserting faith in finance –an area from which faith had largely been banished by the dominant civilization. It is a tough task to accomplish, for which all peoples of faith must pool their resources and skills. Muslims, with a long tradition of (the recently revived) faith consistent finance will welcome any initiatives in that direction.