Islamic Finance is booming around the globe. Currently, there are around 500 Islamic banks operating in 75 countries around the world. Islamic finance is growing at 10-15% per year with GCC Islamic banks constituting 70% of the global total. In fact, non-Muslim countries are also tapping into the growing Islamic finance market by issuing sukuk or Islamic bonds. This growing field of ours was supposed to help lift up the masses from the pangs of poverty and give them access to basic financial services. However, so far, the growing clout of Islamic financial assets around the world has failed to mitigate income inequality so widespread in the Muslim countries.
In the sixties, economists like Mehbub-ul-Haq, Simon Kunets and other proponents of Capitalism thought that “the balancing forces of growth, competition, and technological progress lead in later stages of development to reduced inequality and greater harmony among the classes” However, that has proved to be wrong in most parts of the world.
The exponential growth in Islamic financial assets in the past two decades has raised incomes for corporations, their top managers substantially in many Muslim countries. However, income levels for workers at the bottom did not grow that much.
Same is the case with the Islamic finance of today. It seems to be following the footsteps of conventional finance (or Capitalism as we know it today) in every sense of the word, from product structuring to marketing and every thing in between. Despite all the fanfare in the growing field of Islamic finance, no significant data suggests that any Muslim country was able to reduce income inequality by utilizing excess liquidity in Islamic financial assets. Islamic economists as well as practitioners, so far, have failed to suggest and implement ways to reduce income inequality among the masses in Muslims countries.
The other day, we published a story on how much assets Muslim individuals, governments, institutions and other stakeholders have while tens of millions of people are suffering from abject poverty in most of the Muslim countries. The policymakers as well as Islamic finance practitioners have to give a serious thought on how the poorest of the poor could also benefit from the growing assets of the Islamic finance industry. If it is not done so, the industry is doomed to failure and will be considered as yet another face of conventional finance which infamously takes care of the haves but utterly ignores the plight of the have-nots.
If we are to reduce income inequality among people of a country, the best way to do so might be to slow down the income growth of the highest paid workers in any firm operating in the Islamic finance industry or any other sector. Higher taxes could be levied on high income individuals in the Muslim world while transferring those resources to the middle and low income groups of the societies.
We, as Islamic finance practitioners, policy makers, researchers and other stakeholders need to think about this issue seriously as we can not just continue with the growth of Islamic finance the way we have been doing for the past several years if we have large number of masses whose lives have not been changed despite the significant inroads the Islamic finance industry has made in some of the Muslim countries during the last couple of decades.