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Published On:07 August 2012
Posted by Indian Muslim Observer

Islamic Finance: Mushtak Parker speaks his mind

By Rushdi Siddiqui

"To be persuasive we must be believable; to be believable we must be credible; (to be) credible we must be truthful." Edward Murrow.

In A three-part interview, Mushtak Parker, the leading journalistic voice for Islamic finance for last 30 years, gives his first interview comprised "story telling" candid answers. In first part, I ask him why he is allegedly "tough" on the industry, but not on Malaysia. We then explore the question on Islamic industry bodies, have they reached their glass ceiling for contributions? Finally, his honest comments on (lack of) integrity process of awards in Islamic finance.

The follow-up columns will include discussions on the International Islamic Liquidity Management Corp (IILM), attributes of a successful Islamic banker and institution, milestone in Islamic finance (flyers and flops), bias towards debt capital market (healthy?), educational institutions (fit for purpose?), road and sign-posts to US$2 trillion (RM6.3 trillion), the 1work of the late eminent scholar Dr Zaki Badawi and what is not being done to work available for all to access, "regulation" of scholars, the most challenging interview, and finally, how he would like to be remembered.

Question: You have a reputation for being harsh on some IF stakeholders, why?

Mushtak: You are implying that I am selectively harsh, which of course is not true. I write and analyse as the story and information flow go. This transcends geographic, ethnic, religious, gender and other considerations. With me it is never personal, always on a professional merit basis.

When I wrote the editorial headlined: "Tomorrow's Job for Yesterday's Man," relating to the reappointment of Dr Ahmad Muhamed Ali as head of the IDB, I got several phone calls from IDB personnel (including some senior staff) commending my editorial and stressing that it should have been written ages ago. There was nothing personal about that. Dr Ali is a decent and charming human being.

But I analysed it from an organisational point of view. I think that my editorial was vindicated because 17 years hence he is still in the job. To his credit, he never took it personally either. In fact, he has observed that the industry needs people who can independently comment and keep the Islamic bankers on their toes.

I think the perception about my style is also a cultural issue relating to information and news. I once attended a dinner at the house of a general manager of one of the pioneering Islamic financial institutions in Bahrain. I was with the late Dr Zaki Badawi. While waiting for other guests to arrive, our host asked to see me and Dr Badawi privately.

To my astonishment, he brought up the question of my critical writing and editorials and asked Dr Badawi to speak to me to tone down the articles because it "was not consistent with Arab and Muslim culture of communication". Of course Dr Badawi emphasised that I was an independent writer and that he would not dare try to influence the way I wrote.

On the other hand, I have had some excellent relations with some regulators from the Gulf countries including Saudi Arabia, Bahrain and Kuwait. Very often they tell me: "Mushtak I agree with what you wrote or said, but I cannot say this in public. I will be out of a job. I am willing to talk to you, but off the record." I think, in the wake of the Arab Spring and the proliferation of social and other media outlets, we have seen a gradual liberation of the media and news management, albeit selective and confined to some countries.

If you or the sector thinks that I have been overly harsh, I can confirm that there have been some stories that I have held back on because of inadequate information; or where the whistleblower refuses to go public. I have to be responsible because some of these stories can be damaging to the development of the Islamic finance industry. But I have to draw a line because my ultimate job is to inform about and scrutinise the industry for the benefit of all stakeholders.

Ultimately it boils down to the cultural concept of information in many of the Organisation of Islamic Cooperation (OIC) countries which is not unique to them. In many countries information is an extension of the ministries of information, because the state sees it as a disloyal act to criticise the status quo. In many cases, the state also funds the media organisations and can exercise ownership controls over them. Similarly, some Muslims see any article critical on Islamic finance as an attack on Islam itself. This of course is rubbish.

Question: You also have a reputation of less critical of Malaysia's IF, why?

Mushtak: I am puzzled. Whenever Malaysians talk about my articles the word "provocative" usually pops up. I have had at least two Malaysian prime ministers complaining about some of my articles and wondering why I was critical of their policies. I think the misconception is because Malaysia has the best information flow and disclosure on Islamic finance than any other market in the world.

As you know, we writers have a voracious appetite for information and data. So it is only natural that I have written far more extensively about Malaysia simply because the information is transparent, openly available and it is much easier to have access to both politicians and regulators than all the other OIC countries put together.

Turkey is another good example where information flow is much better than most countries. Once again, I have written a cornucopia of articles on Islamic finance in Turkey including a definitive one on the collapse of Ihlas Finance in 2001 for which I received many letters of support and commendation from market players. The Islamic finance industry and the jurisdictions in which they operate have spectacularly failed to comprehend the importance of quality information as a valuable asset and the leveraging of this asset in its manifold manifestations - marketing, research, financial information and intermediation, financial inclusion, consumer education, etc.

Also the culture of financial journalism is also underdeveloped in most of the Muslim countries including Malaysia. I still see articles calling a sukuk and Islamic bond sukuk or a murabaha with an interest rate of so much per cent. Unfortunately the major international news organisations are also contributing to this information malaise. I see rookie journalists more interested in chasing a headline than understanding the substance of a story.

The occupation is preoccupied with chasing headlines. It is the financial journalism equivalent of Hello and OK magazine. Very often journalists don't know how to ask the right questions because the pressure on them is to get an exclusive no matter how tenuous. The sad thing is that the industry organisations nor the IDB nor the major news organisations are not interested in putting this right through workshops and other programmes in any meaningful way.

Question: There are a number of IF industry organisations, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB), International Islamic Financial Market (IIFM), Islamic International Rating Agency (IIRA), etc., have they reached the "glass ceiling" contribution to IF? If so, what needs to be done?

Mushtak: No, they have not. Like all multilateral organisations they are steeped in the politics of the key member countries and the organisations themselves. Their very establishment is as a result of political haggling, brinkmanship, compromise and trade-offs.

Unfortunately, this has resulted in the establishment of stunted organisational structures. This is not unique to the Muslim world, but because of the varying systems of political governance there, its impact is more debilitating over time. Except for the Malaysia-based institutions such as IFSB, International Shari'ah Research Academy for Islamic Finance (ISRA), International Centre for Education in Islamic Finance (INCEIF), all of which have been established under the tried and tested and uniquely Islamic concept of the Waqf (religious and social endowment) backed by an Act of Parliament with generous financial and other resources, the others are all faced with two serious deficiencies - inadequate memorandum of articles and therefore organisation models, and a serious lack of resources.

For a start these issues need to be addressed urgently for the organisations to be seen to be making real progress. Most of their mandates need to be regularly reviewed to incorporate new thinking in an ever changing world. The IFSB, for instance, says its mandate is to set prudential and supervisory standards for the global Islamic finance industry.

But the biggest regulatory and supervisory challenge for the industry is the lack of a universal authorisation model for Islamic banks taking into consideration the specificities (a favourite term of the IFSB) of Islamic finance. At the moment, it is like the regulatory wild east in the market - Saudi Arabia refuses to adopt a dedicated Islamic banking law, so does Oman.
In some countries such as Bosnia-Hercegovina and Albania, investors actually established Islamic banks only to find out later that they cannot conduct even the basic businesses such as murabaha and ijara because the requisite legislation and tax neutrality measures were not in place. Surely it is high time that the IFSB does issue an Islamic Bank Authorisation Standard because in the end it will obliquely impact on the prudential and supervisory mandate of the board.

Another major challenge for all the above organisations is the question of implementation and adoption of standards. For various reasons, the culture of voluntary adoption among the Muslim countries is woefully under-developed - largely because of their disparate political governance systems and the lack of dialogue and cooperation in Islamic at the policy making and legislature levels. Have you ever seen a lawmaker (and I am not talking about a British Muslim peer or member of parliament) speak at an Islamic finance conference? I rest my case.

Question: The Islamic Banker (IB) is like the Forbes Magazine of IF, how come no Islamic Banker Awards? How come you have not put (IB) on the Internet?

Mushtak: I think you are trying to flatter me. Islamic banker is too under-resourced. I have had offers for investment, but the investors want editorial control, which I am not prepared to relinquish. I have deliberately refrained from going down the awards route because the only way I will do that is when I know I can do so without the encumbrances of sponsorship and with the right and transparent award methodology.

The awards industry has been so blatant in linking sponsorship with awards, it has become nauseating. Islamic banks and bankers are so obsessed with receiving awards that they can't be bothered about who is giving the award. For them it could be any Tom, Dick and Harry. In fact, I recently attended an industry awards, and not surprisingly, three quarters of the sponsors of the event were also award winners. The mind boggles.

I do believe that the industry should honour best practice and outstanding achievement, but not at any cost. I have seen individuals/institutions receiving "Deal of the Year" Award and they actually did not do any deal during that year. Recently Clifford Chance got an award as the Best Islamic Law Firm. I am sure Clifford Chance would be the last to call themselves an Islamic law firm.

Some of the awards are plainly dragged out by region simply to maximise the number of awards. Hence, the potential sponsorship (usually through the paying for tables at the awards dinner). One such recent award in Islamic finance honoured more than 30 people or institutions.
The only way I will get involved with awards is when I know I can do so without commercial sponsorship and I can have a nomination methodology and criteria which is transparent and can be scrutinised. To do this, I may have to tie up with a professional body or organisation which itself would not qualify for an award, so there can be no conflict of interest.
I do not trust solicitation of nominations because this can be and has proven to be susceptible to abuse.

Oh, I can tell you a host of stories leaked to me about the corruption involved in the awards and prize industry including in some of the more established ones where the award juries are instructed from higher up to give the award to someone other than the agreed candidate.
I also await the day when an award promoter stands up to say that this year we are not giving an "Islamic Banker of the Year" award because in our opinion no candidate has come up to those expectations. For example, Malaysia's Royal Award given by Bank Negara and the Securities Commission is the first non-commercial award of substance. But in its nascence it is already faced with anomalies and some contradictions. I hope The Royal Award does manage to overcome these challenges although I suspect it will take some time.

[Rushdi Siddiqui is Global Head of Islamic Finance and OIC Countries at Thomson Reuters. He can be contacted at rushdi.siddiqui@thomsonreuters.com]

(Courtesy: Business Times, Malaysia)

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