The Harvard Business Review (HBR), in its annual list of “Breakthrough Ideas,” has included my article highlighting Islamic finance as “the new global player” in the world’s financial system. The article was co-authored by Dr. S. Nazim Ali, Director of the Islamic Finance Program at the Harvard Law School.
The HBR’s recognition of Islamic finance is yet another indication of the industry’s mainstream relevance and reflects the fact that no financial services institution can be truly global without expertise in Shariah-compliant products and services.
An except from the piece is as follows:
Islamic finance may even have a thing or two to teach regulators and conventional financial institutions. The sharia requirement that all parties to a contract must disclose both risks and rewards could have prevented companies from engaging in the kind of financial engineering that led to the subprime lending crisis. Similarly, the currency speculation that has historically destabilized some emerging markets would be prevented by sharia rules…. Opaque financial contracts laden with penalties and complex clauses would be more difficult to use because sharia requires that the risks of any product or service be clear to both buyer and seller.
Perhaps most interesting is the explicit link that Islamic law makes between financial decisions and values—the powerful notion that people should not profit from activities they consider immoral. Given the growing importance placed on values in the corporate world today, formal mechanisms whereby firms ensure compliance with sharia may serve as a model for all companies that take corporate social responsibility seriously.
The full text is available here and continues to the next page.