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CHAIRPERSON

Assoc Prof Michael Feener, Asia Research Institute and Department of History, National University of Singapore.

ABSTRACT

This paper argues that the embryonic core of the waqf is economic. The waqf shapes the construction and formation of the social, cultural, and economic, as well as the historical developments that determined the evolution of Islamic capitalism, specifically through the accumulation of land and property. While Arabists hanker for an agonistic pluralism of democracy and freedom from the authoritarian state to evolve through the institution of the waqf in the wake of the Arab Uprising of 2011, in order to facilitate the economic empowerment of the disadvantaged groups, here in South East Asia a religious liberalism argues for a revival of the relativity of religious knowledge to economics perpetrated by religious elites, the ulama as well as the merchants and trading diasporas since the fourteenth century.

The global identity in commerce and capital flows through the cash waqf is continued in the Hajj pilgrimage. Commercial and financial initiatives are closely associated with the Hajj. The regional and trans-regional economies are part of the Hajj and particularly important are the rise of Hawala (money changers) and traditional savings and credit institutions and cooperatives through the cash waqf. The circuits of wealth through the Hajj created new forms of capitalism and capital flows. It also introduced new forms of investment and the establishment and expansion of new shipping companies in the pre 20th century western and Japanese expansion.

The waqf thus provides economic opportunities for grassroots movements seeking economic empowerment. Here it is useful to compare Islamic charities with Western capitalism and with the Chinese lineage association, the tong, in operating as a model for ethnic and family dominated entrepreneurship throughout Asia and Africa.

There is a crucial wider context to this argument. It has long been argued that Islam is inimical to sustained economic growth, not least because it prohibits profit-taking and therefore, by implication, discourages economic initiative. My argument is that, through the institution of the waqf, Islam has the structures to empower, to create more ethical forms of capitalism.

Timur Kuran has argued that the economic decline of the Middle East from the 17th century, in contrast to the economic rise of the West, was a consequence of the failure of Middle East societies to develop economically efficient business corporations with clear rules of limited liability. There was a failure to develop joint stock banks, financial instruments and derivatives because of the disincentivising impact of the prohibition of usury or riba, defective inheritance laws, and equal segmentation among family members, and the practice of polygamy. The rule of perpetuity in the ownership of waqf land and a marked absence of juristic personality in tenure of waqf land also deprived Muslims of a commercially profitable market in land and property. However these criticisms exaggerate the impact of Islamic law, as throughout the 20th century it was restricted to personal and corresponding issues not to criminal or commercial and procedural law, which were replaced by Western law. This multi-layered application of Islamic law, customary law and western rules varied over time and place, responding to dramatic changes. It is this evolutionary aspect of Islamic law and Islamic institutions that are the core focus of this appraisal of Islamic capitalism and its comparisons with Western corporate and financial growth.

Corporate growth in the West, like Islamic corporations emerged first as trusts [waqf], then partnerships and corporations. But what distinguished the West from Islamic economies is intrinsic political and economic institutions. The waqf, however, was used to avert fragmentation and assist accumulation of assets.. While Western states maintained a separation between corporations and the political legitimacy of the state, the Islamists, through alliances with religion and state subverted the natural growth of private corporations. The shift to Islamic finance and its prohibition of usury was rendering the shift to impersonal finance, like joint stock banking is complicated , and also kept partnerships small. But Islam borrowed from other legal systems. This is clear in Bahrain, Thailand and Indonesia where three features of corporations are present. First, registration of a corporation with legal personality enshrined in sharia; second personal responsibility though limited liability is not clear; managerial structure with transferability of shares and legal transfers of investors ownership of shares.

The main form of Islamic banking has been in retail banking but with flows of oil wealth there is growing financial services that are sharia compliant. While Malaysia and Bahrain are the leaders in Islamic finance, Bahrain lags behind in development in Sukuk finance [asset backed bonds]. Bahrain is reputed to have the most supportive laws for capital market development.in contrast to its wealthy patron, Saudi Arabia. Slow privatization of state owned companies is an inhibiting factor in assisting the growth of Islamic finance. This research on Bahrain shows that the impact on Islamic financial instruments combined with American restrictions on free flow of capital for fear of terrorism has led to a flourishing of Islamic banks in Bahrain since the 1990s. There has been a growing perception that Islamic finance is more stable than conventional finance since the financial crisis of 2008, thereby diversifying oil investors’ investment portfolio in Gulf Cooperation Council countries as well as in South East Asia besides the West .

This suggests a serious speculation. Is it not possible that the waqf, far from restricting capitalism, points to a more robust form of capitalism? In other words, capitalism of the waqf is stronger, possesses a secure asset base, is transparent and responsive, has scope for good practices in the use of financial instruments including Sukuk, sufficient to secure the development of waqf assets and responsibilities.

ABOUT THE SPEAKER

Rajeswary Ampalavanar Brown is Emeritus Professor in International Business at Royal Holloway College, University of London. Educated at the University of Malaya and a the School of Oriental and African Studies, London, she has taught at both those institutions, as well as at the London School of Economics and at Royal Holloway. She is author of The Indian Minority and Political Change in Malaya, 1945-1957 [Kuala Lumpur, 1981], Capital and Entrepreneurship in South-East Asia [London, 1994], Chinese Big Business and the Wealth of Asian Nations [London, 2000] and The Rise of the Corporate Economy in Southeast Asia [London 2006]. Her most recent monograph, Islam in Modern Thailand: Faith, Philanthropy and Politics, will be published in September 2013. And an edited volume, Charities in the non-Western World: the Development and Regulation of Indigenous and Islamic Charities, will be published towards the end of 2013.

REGISTRATION

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