While maintaining a global focus, the UAE emphasises community values, and combines market efficiency with social improvement.
Islamic finance, ethical banking, crowd finance, im-pact finance, complementary currencies, peer to peer lend-ing. What do they have in com-mon? All are complementary financial alternatives to the conventional system that boost the economic activities of com-munities in which they exist.
The 2008 crisis thrust some of the practices of the global conventional financial system into the spotlight. The experts agreed that there was too much leverage for banks. Also, an un-balanced credit risk made banks lend too much in good years and too little in bad years (in turn creating credit cycles that worsened the economic cycles.) There was too much use of complex derivative prod-ucts that separated the financial economy from the real econo-my (which, in the last decade, has gone to the extreme if we compare the replacement value of global derivatives with global GDP). And, of course, the lack of a global control allowed a few, but very harmful, corrupt individuals to take advantage of the system.
Thus, many people in the world are searching for alterna-tive ways of doing finance. In this context, Islamic finance, ethical banking, and other non-banking solutions are of special relevance. Not all of these fi-nancial modes are brand new. For example, Shariah-compli-ant institutions date back as far as the 1950s, (although some of its financial solutions go all the way to the 6th century).
The origins of the Social Re-sponsible Investment (SRI) can be traced to the Quaker and Methodist religious movements of the 19th century, and initia-tives such as complementary currencies, like the WIR bank in Switzerland, have been in place the early part of the 20th century. Others, like crowd fi-nance platforms such as Zopa in the UK, have emerged more recently, and after 2008 we have witnessed the birth of many new institutions, as well as a large number of debates, conferences, congress, and platforms on sustainable, ethi-cal, or alternative finance.
Alternative finance initiatives have been particularly popular among the youth, since not only have the troubles of the fi-nancial system cut their lend-ing opportunities for projects, but also because they will be the ones to bear the excess le-verage of the present situation.
What alternative financial in-stitutions — whether Islamic, ethical, sustainable, or commu-nitarian — have, that the con-ventional banking system has lost, is a well defined, cohesive community which holds, at its core, a value system with estab-lished rules and definitions of how to operate and what type of business should be financed for the well being of the overall community.
Alternative initiatives like Is-lamic and environmental fi-nancing speak to a concrete community: each to its own, with a shared set of values and principles and include a socially recommendable impact. And if the community feels that an or-ganisation is parting from those basic principles, they will im-mediately stop using their ser-vices. The big change does not come from the industry itself, but from a conscious commu-nity that demands financial re-sources and financial uses op-erate within a system of rules with one crucial premise: to help individuals in the commu-nity develop economic ventures that better the wellbeing of the community itself — a local community in the case of the complementary currencies or a global community in the case of ethical or Islamic banking.
The UAE is the home of the first modern Islamic bank. The Dubai Islamic Bank was found-ed in 1975 and has, in the last decade, shown the greatest dy-namism in Islamic financial products innovation. Moreover, in terms of financial internet solutions, the UAE youth will soon gain a stronghold in the global economy, due to the fact that it is among the highest in the world in terms of techno-logical literacy — specifically the business women in the UAE who, a recent study shows are technology users — up to 90 per cent of mobile phones and 99 per cent of internet.
These examples illustrate the role that the UAE is already playing in the new financial ini-tiatives emerging globally. While maintaining a global fo-cus, the UAE emphasises com-munity values, and combines market efficiency with social improvement.
A new financial order is emerging in the privileged geo-graphical position of the UAE, and its legendary merchant tra-dition will ensure it plays an important role in shaping the new financial order.
Celia de Anca
Professor Celia de Anca is director of Scief at IE Business School and is author of Beyond Tribalism. Views expressed by the author are her own and do not reflect the newspaper’s policy.
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