Know Your Enemy: Building Riba-Free Finance

QUESTION: "What is the Islamic justification/evidence for ‘the end justifying the means’?  Earning from a haram sector (like debt capital markets) and contributing to the issuance of bonds is displeasing to Allah.  Yet how can we say this is OK if we have the intention to benefit Muslims later?"

Thinking Muslim recently published a podcast called “Managing Your Money and the Halal Economy”.  In it, I spoke about young people working in financial services and some viewers felt I unequivocally advocated that young people should be bankers.  In fact, my advice is much more nuanced.

At one time, I used to advise young people worried about the permissibility of such work that I couldn’t in good conscience advise them to pursue a career in finance, especially banking.  Almost all financial services are touched by riba (interest), and specifically any traditional banking activity (lending) is the worst of all.

When asked this question in the past, I often conceded that my own early career involved a period of training during which I worked in the field of project finance, which is the financing of infrastructure such as roads and railways.  Much of such financing is done via loans and bonds, which of course are interest-bearing. 

As a new graduate, I had agonised over whether to accept a job offer in project finance and consulted a well-known Islamic finance expert for guidance.  He told me if I didn’t take the job, I wouldn’t gain the necessary skillset to implement a halal alternative.  He was right, and yet, in a sense, he was also wrong.

It turned out that, despite my and others’ best efforts, it proved impossible to change the industry from within.  We tried to align as much of the field of modern finance with the principles of halal commerce and trade.  In the end, the struggle proved Sisyphean: we rolled the Islamic finance boulder up the hill only to have it fall back on us.  We attempted to create from first principles products that were risk-sharing, real economy and asset-based within the context of sophisticated capital markets, but the juggernaut of global financial services demanded only reverse-engineering of conventional debt.  I documented much of that history in my book, Heaven’s Bankers.

In the end, I left the industry to create my own non-bank financial intermediary to implement a purer interpretation of prophetic trade and economics.  Ultimately, it is God’s will if this venture will be successful, but I can say with certainty that without my earlier training, establishing such an institution would have been a non-starter.

In the past few years, I have seen countless Islamic fintech startups attempt and fail to build a commercially viable, alternative finance company.  The reason in all cases has been a lack of hardcore skillset and experience.  Young people with excellent technical knowledge of (say) just coding, or perhaps just marketing, or maybe just general business management, believe their existing skillset and dynamism will be sufficient to create a financial services company.

Imagine if an entrepreneur decides to establish a car manufacturer.  She establishes her legal team, her IT people, her HR department, her branding and marketing team and other bits and bobs that form the general support infrastructure of any company.  But she doesn’t hire any engine designers or chassis builders, and is not one herself.  There are no actual engineers in the company.  She has… practically speaking, nothing.  It’s a shell waiting for the product to magically build itself.

That’s what happened with many Islamic fintechs.  Many came to market with unrealistic and grandiose visions of becoming digital challenger banks.  At one time, I knew about a dozen claiming to have the same ambition.  Without a deep toolkit of financial engineering skills, the ones that survived could at best become “product aggregators” – a forum to collate and offer other people’s products.

So, very reluctantly, I have since concluded that working in financial services for a short while to gain a specific skillset is an unpleasant necessity to change the system.  This may not necessarily entail working directly with riba: for example, many finance skills can be acquired through accountancy, management consultancy, fund management or some parts of non-debt investment banking, like equity capital markets.  At the top tier firms, especially so-called “bulge bracket” investment banks and Magic Circle law firms, smart people will learn how to originate, design, structure and sell complex instruments.   They will be immersed in the law, regulation, maths and psychology.  They cannot learn this from a textbook nor can they acquire the full financial engineering toolkit in any other industry.

The key caveat here is that gaining these skills “behind enemy lines” requires a particular type of single-minded, resilient, obsessive, “based” individual to do so and not be assimilated.

Now I advise young people: if you have the right mindset and keep your eyes on the prize, then lie in the belly of the beast for just enough time to know your enemy well, then leave and build an alternative.  If, on the other hand, you forget yourself and your purpose and end up staying beyond a certain tipping point, you will be absorbed by the collective.  Only you know if you have that self-discipline.

Somehow, my advice on the podcast has been reductively translated by some as “go work in a bank for five years”.  I wish I had been clearer.  I regularly lecture university students on the subject of Islamic finance and often end the lecture by describing the alternative financing system my company is building.  I ask the students that if they like what they hear, then go get their experience at the best blue-chip firms, whatever their particular discipline – whether that is in law, audit, software engineering, marketing or, yes, financial services.  Get the best experience you can because I don’t have the resources to train you today.  You will need 2-5 years to hone your craft.  Then leave and come work for me.

One cannot build in a vacuum, reading from a textbook written by a guy who never dirtied his hands at the coal face.  Ivory tower academics love to say “you should do this” and “you should do that”.  But an idea is just idle fantasy until it is forged and tested in the crucible of the marketplace.

Riba is one of the most heinous sins in our faith.  It is a cancer.  It infects everything it touches.  People who forswear riba and remove it from their lives lead happier lives, filled with baraka.  But if we want to defeat it, first we must understand how it is designed and perpetuated.  Muslims love to issue fatawa against each other, each claiming a higher degree of piety with increasingly digital judgements of haram versus halal.  Critics of my methodology should study game theory.  If the other side has an atomic bomb, you better learn to build one quick or become a slave.

EYES ON THE PRIZE; ACQUIRE YOUR SKILLSET; LEAVE; BUILD.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

― Sun Tzu