Islamic finance: where things are not always as they seem!

The Tale of Two Beliefs

In the vibrant city of Kuala Lumpur, two friends, Ali and Ahmad, often found themselves engrossed in passionate discussions about finance. Despite their shared interest, they held contrasting views about Islamic finance.

Ali saw it as a mirror image of conventional finance, while Ahmad believed it to be a unique system with its own values.

Their differing beliefs often sparked lively debates.

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The Two Beliefs

Ali’s belief was rooted in his observations of the financial world around him.

He noticed that Islamic finance, like its conventional counterpart, included banks, insurance firms, investment companies, capital markets, and fund managers.

He saw Islamic financial products like murabahah (cost-plus financing) and sukuk (Islamic bonds) bearing striking resemblances to conventional loans and bonds.

This led him to conclude that Islamic finance was merely mimicking conventional finance.

Ahmad, on the other hand, held a different perspective.

His belief was anchored in the principles of Shariah law that guided Islamic finance.

He pointed out that Islamic finance prohibited interest (riba), required financing to be linked to real assets (materiality), and forbade engagement in immoral or ethically problematic businesses.

He saw these principles in action in the practices of Islamic financial institutions and was convinced of the unique values of Islamic finance.

The Tension Between The Beliefs

The tension between Ali and Ahmad’s beliefs was more than just a simple disagreement.

It was a reflection of the complex interplay of cognitive biases and societal influences that shape our perceptions and beliefs.

Ali, who believed that Islamic finance mimics conventional finance, was influenced by what psychologists call “confirmation bias”.

This is a tendency to search for, interpret, and remember information in a way that confirms one’s preexisting beliefs.

For example, Ali might have focused on the similarities between Islamic and conventional finance, such as the existence of banks and insurance firms in both systems, while overlooking the differences.

His belief could also be influenced by “black-and-white thinking” or “dichotomous reasoning”, a cognitive distortion where things are perceived as either-or, good-bad, right-wrong with no middle ground.

This might have led him to view Islamic finance as either identical to or completely different from conventional finance, without considering the possibility of it being a unique blend of both.

On the other hand, Ahmad’s belief that Islamic finance has unique values was shaped by societal norms and cultural values.

In societies where Islamic principles are highly valued, the unique aspects of Islamic finance may be emphasized.

For instance, Ahmad might have been influenced by his community’s emphasis on the ethical principles of Shariah law that guide Islamic finance.

These principles include the prohibition of interest (riba), the requirement for financing to be linked to real assets (materiality), and the prohibition of engagement in immoral or ethically problematic businesses. T

hese societal and cultural influences might have reinforced Ahmad’s belief in the uniqueness of Islamic finance.

In essence, the tension between Ali and Ahmad’s beliefs was not just a matter of differing opinions but a manifestation of deeper psychological processes and sociocultural factors.

Understanding these underlying influences is key to resolving their disagreement and finding common ground.

Harmonizing The Beliefs

One sunny afternoon, as the call to prayer echoed through the bustling streets of Kuala Lumpur, a wise old man named Professor Mohammad was sipping his tea at a local café.

He overheard Ali and Ahmad’s passionate debate about Islamic finance. Intrigued by their discussion, he decided to step in and offer his insights.

Professor Mohammad, a seasoned scholar with decades of experience in both Islamic and conventional finance, proposed a few strategies to harmonize Ali and Ahmad’s beliefs.

He suggested that they could look at the situation from a different perspective.

Instead of viewing Islamic finance as merely mimicking conventional finance, Ali could consider it as an adaptation of certain useful structures from conventional finance but applied within a Shariah-compliant framework.

This reframing would acknowledge the similarities between the two systems while also recognizing the unique ethical constraints that Islamic finance operates under.

But Professor Mohammad didn’t stop there.

He also proposed a middle ground where both Ali and Ahmad could find commonality.

He suggested that they could agree on the fact that while Islamic finance used similar structures to conventional finance (e.g., banks, insurance firms), it operated under a different set of principles and values.

This perspective would allow them to see that Islamic finance is not just a carbon copy of conventional finance but rather a system that blends familiar structures with unique guidelines.

Through these strategies, Professor Mohammad aimed to bridge the gap between Ali and Ahmad’s beliefs, fostering understanding and harmony.

His wisdom served as a reminder that differences in beliefs can often be reconciled through open dialogue, mutual respect, and a willingness to see things from a different perspective.

The Benefits of Harmonization

Professor Mohammad explained that resolving this dissonance could lead to clearer decision-making, reduced mental fatigue, and enhanced learning.

It could also bring emotional relief and increase social harmony by fostering mutual understanding and respect for different financial systems.

Harmonizing the beliefs that “Islamic finance mimics conventional finance” and “Islamic finance has unique values” can bring about several benefits, as explained by Professor Mohammad:

Clearer Decision-Making: Understanding that Islamic finance is not just a mirror image of conventional finance but a unique system with its own values can lead to more informed decisions. For instance, an investor looking to invest in a Shariah-compliant way would need to understand the unique principles that guide Islamic finance. This understanding can help them choose the right financial products that align with both their financial goals and ethical values.

Reduced Mental Fatigue: Holding two conflicting beliefs can be mentally exhausting. It’s like trying to juggle two balls at once! By reconciling these beliefs, we can reduce this mental strain. It’s like putting one of the balls down, allowing us to focus our mental energy more effectively.

Enhanced Learning: The process of harmonizing conflicting beliefs can be a powerful learning experience. It encourages us to question our assumptions, seek out new information, and view things from different perspectives. In the context of Islamic finance, this could mean learning more about the principles of Shariah law, the workings of different Islamic financial products, and how they compare with their conventional counterparts.

Emotional Relief: Cognitive dissonance, or the tension that comes from holding two conflicting beliefs, can cause emotional discomfort. Resolving this dissonance can bring a sense of relief and emotional well-being. It’s like finding a resolution to a long-standing dilemma.

Increased Social Harmony: Finance is not just about numbers; it’s also about people. When we appreciate the unique aspects of Islamic finance and its similarities with conventional finance, we foster mutual understanding and respect among individuals who uphold different financial systems. This can lead to increased social harmony and cooperation in our diverse society.

Actionable Steps Towards Harmonization

Taking actionable steps towards harmonizing these beliefs involves a proactive and ongoing process. Here’s how Professor Mohammad suggested going about it:

Active Learning: This involves seeking out resources and opportunities to learn more about both Islamic and conventional finance. It could be reading books, attending seminars, enrolling in online courses, or even engaging in discussions with experts in the field. The goal is to gain a comprehensive understanding of both systems, their similarities and differences, and the principles that guide them.

For instance, one could start by learning about the basic principles of Islamic finance such as the prohibition of interest (riba), the requirement for financing to be linked to real assets (materiality), and the prohibition of engagement in immoral or ethically problematic businesses. Then, one could explore how these principles are applied in different Islamic financial products and how they compare with their conventional counterparts.

Regular Revisiting of Beliefs: This involves periodically reassessing one’s beliefs in light of new information or experiences. It’s not enough to just learn new information; one must also integrate this information into one’s belief system. This could involve reflecting on how new information aligns with or challenges one’s existing beliefs and being open to modifying those beliefs if necessary.

For example, if one comes across a new Islamic financial product that doesn’t seem to fit neatly into the categories of either mimicking conventional finance or having unique values, one might need to revisit and possibly revise one’s beliefs.

In conclusion, navigating cognitive dissonance is indeed a journey - a journey that requires patience, openness, and self-awareness. It’s not always easy to reconcile conflicting beliefs, but by approaching this challenge with both scientific rigor and empathetic understanding, we can harmonize our beliefs and enhance our understanding of the world.

Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

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